BEIJING, February 1 (TMTPost)-- Apple Inc. sales in China took a knock during the holiday season, highlighting the a sluggish start for its latest smartphone flagship iPhone 15 in the face of Huawei's strong comeback.

Credit：Visual China

Apple reported net sales of $119.58 billion for its first fiscal quarter ended December 30 2023, beating analyst expectation of $117.91 billion. The sales represented a year-over-year (YoY) growth of 2%, the first increase in quarterly sales over a year. Earnings per share (EPS) rose 16% YoY to a quarterly record of US$2.18, also beating expected $2.10. However, sales in China dived around 13% YoY to $20.82 billion, missing analyst estimates of $23.5 billion. That was Apple’s lowest sales for December quarter in China, its third largest market in the world, since the first period of 2020.

“We are not happy with the decline, but we know China is the most competitive market in the world,” said Apple Chief Financial Officer (CFO) Luca Maestri following the financial results. Woresely, Maestri gave an outlook suggesting weak iPhone sales in the beginning of this year. Since out of the revenue of $51.33 billion in the quarter ended March last year, $5 billion sales attributed to outperformance as supply recovered from Covid shutdowns and caught up to demand, Maestri cautioned iPhone sales in the current quarter would be hard to record positive growth. “When we remove this impact from last year’s revenue, we expect both our March quarter total company revenue and iPhone revenue to be similar to a year ago,” Maestri told analysts at an earnings call. What Maestri suggested is that growth of iPhone sales could stall in the current quarter, while analysts reviously expected a 1% YoY gain in sales for the period.

"Obviously we'd prefer not to contract," Apple CEO Tim Cook commented on the revenue decline in the Chinese market on the conference call. Cook noted Apple had solid YoY growth of iPhone upgraders in mainland China and its products represented four of the top six smartphone models in urban China in December quarter. Cook said he remains “very optimistic ” about China in the long run. Responding to a question that whether he thinks Apple could resume growth in China, Cook pointed to growth in the number of people upgrading their iPhones in the market.

Data revealed in last October has showcased how iPhone sales hit by Huawei’s flagship. Counterpoint estimated Huawei has sold 1.6 million Mate 60 Pro handsets in six weeks, and more than 400,000 units out of the sales were sold in the two weeks when Apple launched its latest mobile iPhone 15 on mainland China. In the week ended October 8, or the 40th week of the year 2023, Huawei took the first place with a 19.4% of market share by sales in China, according to BCI, a Chinese consulting firm focusing on research in the communications industry.

The Wall Street has issued warnings about weakness of Apple sales in China. In October, investment firm Piper Sandler reduced its expectations for Apple's December quarter over weak iPhone demand in China and economic headwinds. It cited source suggesting iPhone 15 sales in China have been lackluster. This is attributed to poor economic trends and strong competition from brands like Huawei.

In November, Ming Chi Kuo, an analyst at TF International Securities who is well known for his accurate predictions on future Apple products, claimed shipments of iPhones in China declined more than he expected. The analyst linked some of the downturn to Foxconn's Zhengzhou factory, which is used to produce iPhones and had labor riots related to allged decision to delay bonus payments and issues regarding anti-Covid measures. He said the disruption caused Foxconn to ship "12 million fewer iPhone 14 Pro & Pro Max units, resulting in a lower revenue baseline for 4Q22."  Given Apple posted a 2.4% YoY decline for the fourth quarter of its fiscal year 2024, instead of its guidance of a flat, Kuo believes Apple's 4Q23 momentum is weaker than expected, primarily due to a decline in iPhone demand in the Chinese market.

In a note in January, Jefferies analysts said iPhone 15 endured a sluggish start in China in 2023, with a 30% YoY drop in sales in the market, and the volumes could decline further this year. Earlier this week, Kuo noted Apple’s weekly shipments have declined 30% to 40% year-over-year (YoY) in China, the world’s largest smartphone market, and the trend is expected to continue. In a note on Wednesday, Kuo said the iPhone faces structural challenges that will lead to a significant decline in shipments in 2024, including the emergence of a new paradigm in high-end mobile phone design and the continued decline in shipments in the Chinese market.

Kuo explained the main reason for the decline in China is the return of Huawei and the increasing preference for foldable phones among high-end users as their first choice for phone replacement. Apple has lowered its 2024 iPhone shipments of key upstream semiconductor components to about 200 million units, which correspondents to a 15% YoY decline,  Kuo cited his latest supply chain survey. Apple may have the most significant decline among the major global mobile phone brands in 2024 Kuo expected. He noted shipments of the latest iPhone 15 series and even new iPhone 16 series will drop 10% to 15% YoY in the first half and second half of 2024, respectively.