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CEO Tim Cook said in a letter to shareholders released Wednesday that demand for iPhones is waning and revenue for the last Quarter of Y 2018 will fall well below projections, the decline traced mainly to China.
Apple is the latest global company grappling with increasing Chinese consumer anxiety. Other brand names such as Ford (NYSE:F). and jeweler Tiffany & Co. (NYSE:TIF) already have reported sharp declines in sales to Chinese buyers.
China still is one of the fastest-growing economies, with Y 2018’s expansion forecast at about 6.5%. But China’s tariff fight with the US and bad news about falling auto and real estate sales are undermining consumer confidence after 20 years of rapid growth.
Weakness in Chinese demand is especially painful for Apple and other smartphone makers. China accounts for 33% of the industry’s global handset shipments.
Shipments in China fell 10% from a year earlier to 103-M handsets in the Quarter ending in September, according to research firm IDC. It expects last year’s total Chinese purchases to shrink by 8 to 9% compared with Y 2016.
The belt-tightening in the world’s 2nd-largest economy is hurting global industries, including autos and designer clothing, that count on China to drive sales growth.
The trade dispute with Washington has shaken a sense of China’s invincibility, as the Chinese are waking up to the fact that their economy is vulnerable to the uncertainties of the global economy.
This is a setback for the ruling Communist Party’s efforts to nurture self-sustaining, consumer-driven economic growth and wean China from its reliance on exports and investment.
China’s Q-3 economic growth of 6.5% was stronger than most other major economies, but the country’s lowest since the Y 2008 global financial crisis.
Beijing has propped up growth with higher government spending, helping to offset contractions in some areas.
Still, auto sales in the biggest global market are on track for their 1st annual decliner in 30 years after plunging 16% in November.
Overall, export growth decelerated to 5.4% over a year earlier, less than 50% October’s 12.6% rate.
In smartphones, that includes Huawei, Oppo, Vivo and Xiaomi. Some are priced as low as 500 RMB Yuan ($70). Others have beaten the American giant to market with features Chinese users want, such as phones that can use separate carriers for voice and data.
That has eroded the iPhone’s cachet and customers’ willingness to pay premium prices.
Apple’s Q-3 shipments in China fell 13% from a year earlier to 7.5-M units, according to IDC. Its market share of 7.5% put it in 5th place at less than 33% Huawei’s 24.6% share.
In his letter to Apple shareholders, Mr. Cook gave no China sales figures for the final Quarter of the year but said traffic to retailers declined as “mounting uncertainty” fueled by the trade fight weighed on demand.
Globally, Apple fell behind Huawei to become the #3 brand by number of handsets sold in Q-3, according to IDC. SKorea’s Samsung Electronics was in 1st place.
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