apple (AAPL -1.01%) is growing its revenue around the world thanks to sales of top products such as the iPhone and Mac, as well as its services. In fact, in the most recent quarter, Apple achieved record revenue in more than 20 countries and regions. This allowed the company to increase its earnings per share by 16% during the reporting period.
However, one particular country has recently become a challenge for Apple, and unfortunately the country is key to its growth as it typically accounts for about 20% of Apple’s total sales. I’m talking about China. In the quarter, Apple’s revenue in China fell 13%, and its operating profit in China fell 17%. Should we be worried about such a decline in such an important market? Let’s find out.
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Why did Apple’s revenue decline in China?
It is important to consider why There appear to be several reasons behind Apple’s declining revenue in China. The country’s real estate crisis and slowing economic growth are weighing on consumer confidence, which could affect customers’ decisions to buy high-end smartphones, tablets and other devices.
Therefore, today’s tough economic environment may lead Chinese consumers to lower-priced options. And speaking of options, that brings us to his second, and perhaps even the biggest, reason why Apple’s sales in China are sluggish.
Apple is once again facing domestic competition from smartphone giant Huawei. The Chinese company lagged a few years ago when U.S. sanctions blocked its access to the chips that power 5G phones. But last year, Huawei made a surprise comeback, launching 5G phones powered by Chinese chips. And according to IDC, Huawei returned to the top five in China’s smartphone market in the fourth quarter for the first time in two years.
The launch of Huawei’s Mate 60 Pro phone could be just the beginning of this new era of growth for the Chinese company. This means Apple may face even more competition in this key country in the future.
Now, let’s get back to the question. Should we be concerned about Apple’s slowdown in China? Not necessarily. Here’s why: First, economic factors that lead consumers toward cheaper products generally represent a temporary trend. And Apple has successfully coped with today’s situation and increased its smartphone market share position.
China’s No.1 smartphone
Apple captured the No. 1 smartphone spot in China for the first time last year, with 20% of the market as of the fourth quarter, compared to Huawei’s 13% share, according to IDC data. And this comes amid a difficult economic climate where overall smartphone shipments are at their lowest in a decade.
Apple also said it saw a “steady increase” in mainland Chinese customers upgrading their phones in the most recent quarter. This is particularly positive as it shows that his current Apple users are sticking with the brand rather than turning to cheaper rivals. This supports the idea that over time, Apple’s brand strength should act as a moat, or competitive advantage, keeping Apple ahead. So even if Huawei gains some market share and Apple faces short-term headwinds, the iPhone maker could continue to grow over time.
Comments from CEO Tim Cook on a recent earnings call support this idea. “I’m very optimistic about China in the long term,” Cook said.
So what does this mean for you as an investor? Even if China doesn’t significantly increase Apple’s revenue in the coming months, the technology and consumer goods giant will still be a big investment. becomes. The company recently reached an all-time high of 2.2 billion devices installed worldwide. These devices provide further revenue growth opportunities as customers subscribe to the service.
When it comes to China, Apple is a leader in the country, has made progress in certain areas as mentioned above, and is aware of today’s challenges, which will affect the company’s ability to weather the storm and cope with domestic competition. There is reason to remain confident.
Apple has a solid earnings track record and analysts expect the company to deliver double-digit annual growth over the next five years, making it a top growth stock to own right now, even considering the situation in China. It will continue to be.
Adria Cimino has no position in any stocks mentioned. The Motley Fool has a position in and recommends Apple. The Motley Fool has a disclosure policy.