Is Apple’s recent success in China sustainable for the foreseeable future?
Apple enjoyed record-breaking sales earnings in last year’s December quarter according to reports. The tech giant enjoyed a whopping 57% growth in the previous year selling over $21 billion worth of units. This unprecedented success was due to the strong demand for the iPhone 12. The record-breaking sales marked more than just a financial triumph for the tech giant as China is a key market. With sales from china making up as much as 20% of the tech giant’s total revenue in the last quarter of 2020, the strong iPhone 12 demand has helped the company’s cause in such a key market.
Apple has not always recorded such great numbers in the Chinese market. In the second quarter of 2018, iPhone sales projections were halved by analysts citing weakness in China as the main reason amongst several others.
By the first month of 2019, the company was warning investors to expect lower sales during the last quarter primarily due to weaker sales in china largely due to the trade war with the united states. By the end of the first quarter of 2020, the covid-19 outbreak had shut down china, and the company had to adapt to shuttered stores and factory closures impeding their operation in the region.
Analysts remain optimistic about the prospect of Apple’s sales in China, maintaining that the success recorded in the last quarter of 2020 was no anomaly.
A senior portfolio manager at Synovus Trust Company, Dan Morgan had disclosed that: “China was kind of like a thorn in Apple's side, now, the pendulum has completely swung to the other side”
The Chinese market remains a crucial one for all smartphone manufacturers although iPhone sales have not always been steady in recent years.
The middle class in the highly populated country is quite large with enormous spending power. The popularity of mobile applications especially e-commerce and banking applications in the region is a great opportunity for Apple to earn incremental revenue from its software services and app store. With a global share of 14.8% and a 10.1% in China, there is clearly room for growth according to stats from Gartner.
According to projections, China will account for about 20% of global iPhone sales in 2021. Dan Ives, an analyst at Wedbush described China as “a key ingredient” in Apple’s success.
In a move that will likely drum up even more support for Apple among young Chinese customers, Apple CEO Tim Cook recently granted a rare interview to He Shiijie, a Chinese college student and tech influencer. The CEO admitted to having a lot of Apple product features inspired by Chinese consumers, the QR code scanner, and iPhone night mode to mention a few.
According to the CEO f Apple, the company listens carefully to customers in China and winds up coming up with products based on input from Chinese customers. He added that that the company gets a lot of feedback from china.
The impact the iPhone 12 sales had on Apple’s success in the last quarter of 2020 was undeniable, although sales of other Apple products such as iPad and wearables also contributed to the impressive figures.
According to analysts, smartphone lifecycles had gotten considerably longer in previous years and there were very few novel features to inspire consumers to upgrade their smartphones. By the iPhone 12 was launched with 5G technology, consumers finally had enough reason to part with their old devices and upgrade to new ones.
Of the several reasons the iPhone 12 was popular in China, the numerous upgrades stood out according to Tim Cook. Another reason is that the 5G networks in china are more robust than many other markets. Hence, consumers had a greater incentive to upgrade. By contrast, consumers in the united states may have to wait until there is a more widespread distribution of 5G networks.
According to Morgan, China has enjoyed a very aggressive build-out of 5G, while the united states have not been as committed.
In addition, china’s economy recovered faster from the covid-19 pandemic downturn than other countries. According to Annette Zimmerman, a Gartner analyst, the Chinese economy is about 50% ahead of Europe and North America, as a result, Chinese consumers have more spending power.
In 2020, apple smartphone sales in China rose by 8%, however, the number only includes 2 months of the iPhone 12 sales.
According to Zimmerman, the company should still expect positive growth over the next two quarters as there are a good number of people that need to upgrade their smartphones and get on the faster 5G network.
Another reason for apple’s success may be the Chinese competitor, Huawei’s struggles as recent US policies have excluded Huawei from top-tier American tech. with Huawei unable to use software from google in its smartphones, their smartphones become less appealing to the android customer base.
While apple’s share of the smartphone market in China rose by 5% in the last quarter of 2020, Huawei suffered a loss of over 10% of their previous smartphone market share according to IDC stats.
The continuation of apple’s success in China is largely dependent on analysts’ predicted iPhone 12 upgrade “supercycle”, many people believe that the predicted upgrade will come to be.
Morgan expressed his optimism about the prospects of apple’s performance in the Chinese market. He also went on to describe the success apple enjoyed last quarter as “not just a quick aberration”, citing the continued success in the first month of 2021 as an indication of future successes.Source