The Outlook for Apple’s Performance in China

China is currently Apple’s (AAPL) third-largest market in terms of revenues. China was previously the tech giant’s second-largest market fiscal 2015 and fiscal 2016, after which Europe reclaimed the second spot. A growing smartphone market, the launch of the iPhone 8, and appreciation of the Chinese yuan are key drivers for Apple to increase its revenues in China.

In fiscal 2Q15, Apple generated revenues of $16 billion from Greater China, compared to $9.8 billion in fiscal 2Q14. Since then, revenues from China have been declining significantly. As we saw in the previous article, domestic competition in the smartphone segment has negatively impacted iPhone sales.

In fiscal 1Q17, the United States (SPY) held its position as Apple’s largest market, generating revenues of $32.0 billion—a 9.0% rise from its fiscal 1Q16 revenues.

Apple’s (AAPL) revenues from Europe rose 3.0% to $10.5 billion, and its revenues from the Asia-Pacific region rose 8.0% to $5.9 billion. Its revenues from Japan saw a significant rise of 20.0% to $5.8 billion.

Apple’s revenues from Greater China—including China, Taiwan (EWT), and Hong Kong—fell 12.0% YoY (year-over-year) from $18.4 billion in fiscal 1Q16 to $16.2 billion in fiscal 1Q17. Its revenues from Mainland China rose YoY on a constant currency basis. Apple’s sales in China fell for three consecutive quarters—24.0% YoY in fiscal 2Q16, 33.0% YoY in fiscal 3Q16, and 30.0% YoY in fiscal 4Q16.

Apple’s CEO, Tim Cook, attributed its revenue decline in fiscal 1Q17 to a weak Chinese yuan, which depreciated 6% YoY in fiscal 1Q17, compared to currency appreciation of 6% in the previous year. However, China is a huge market for Apple and according to IDC, the smartphone market rose 18.7% YoY in 4Q16 and 8.7% YoY in fiscal 2015.