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Why Is Apple Underperforming in China?


Jan. 4 2019, Updated 12:35 p.m. ET

Apple’s iPhone sales in China

Apple (AAPL) has been witnessing sluggish demand for its iPhones in China (MCHI) (FXI), the world’s largest smartphone market. China is also the second-largest market for Apple iPhones after the United States (SPY). Apple has been growing in the double-digits in the Greater China region for the past five quarters after seven consecutive quarters of falls. However, this growth has been declining for the past two straight quarters. The Greater China region includes revenues from China, Hong Kong, and Taiwan.

In the fourth quarter of fiscal 2018, Apple’s revenue from Greater China rose 16% YoY (year-over-year) to $11.4 billion, while it rose 19% YoY in the third quarter and 21% YoY in the second quarter.

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Weakening economy in China

Apple expects headwinds in China to be one of the major drivers of its revenue guidance cut for the first quarter of fiscal 2019. Apple now expects its fiscal 2019 first-quarter revenue to be as much as $9 billion, lower than its earlier forecast. The trade war between the United States and China has weakened the demand for iPhones among Chinese consumers.

Currently, Apple’s products, including iPhones, are exempted from the tariffs. Other Apple products, such as its smartwatch, wireless headphones, and speakers, are also exempted from the tariffs. However, in November, President Donald Trump suggested that he might place a 10% tariff on iPhones, MacBooks, and iPads imported from China, making them more expensive. In the fourth quarter of fiscal 2018, overall iPhone sales rose 29% YoY to $37.2 billion.


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