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Why Apple May Have Returned to Growth in Greater China

By Daniel Sparks - Jan 11, 2020 at 8:45AM

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Several data points suggest sales trends are improving for the tech giant in this important overseas market.

Apple's (AAPL -0.09%) Greater China segment weighed on the company's results during fiscal 2019, as iPhone sales in the market failed to live up to tough comparisons from fiscal 2018. These challenges have sparked concerns that the tech giant's iPhone business had peaked in the market as local competition intensifies.

But new data from the China Academy of Information and Communications Technology on iPhone sales in China during December suggests that iPhone revenue could be picking back up in the important market during fiscal 2020. With iPhone being Apple's biggest segment, this would bode well for the company's overall performance in its Greater China market.

A packed Apple store after the iPhone XS launch in China

An Apple store in China. Image source: Apple.

A tough fiscal 2019 in Greater China

During Apple's holiday quarter in 2018, iPhone sales took a significant hit. Total iPhone revenue fell 15% year over year during the October 2018-December 2018 time frame, which is the company's first quarter of fiscal 2019.

While investors expected headwinds in iPhone during the period, this pullback in the smartphone segment's revenue was worse than anticipated. One geographic segment, in particular, accounted for the unforeseen magnitude of declining iPhone revenue during the period: Greater China.

"Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline," said Apple CEO Tim Cook in a Jan. 2 letter to investors that detailed to investors why the tech company  wouldn't hit its guidance for the period. 

Revenue in the market plummeted 27% year over year, which highlighted Apple's challenging environment in Greater China during its first quarter of fiscal 2019.

Improving revenue trends in Greater China

Importantly, however, year-over-year revenue declines in Greater China moderated throughout fiscal 2019, improving from a 27% decline in fiscal Q1 to a 2% decline in fiscal Q4. Further, considering commentary from Apple management during the company's most recent earnings call on progress in China during September and new government data on iPhone sales trends in China, it wouldn't be surprising if Apple reported that it returned to growth in Greater China during the first quarter of fiscal 2020.

Citing data from the China Academy of Information and Communications Technology, Reuters reported on Thursday that iPhone sales in China increased 18% year over year.

This follows upbeat commentary on China's reception of the newest iPhone models in September. Apple CEO Tim Cook said in the company's fiscal fourth-quarter earnings call that the company "had a very good September" in China when it came to the iPhone, citing the company's launch of its iPhone 11, 11 Pro, and 11 Pro Max as catalysts. Cook also noted that services grew by a double-digit year-over-year rate in fiscal Q4 and wearables sales in the market increased at an even greater rate than the "well over 50%" year-over-year revenue growth rate Apple saw for wearables on a companywide basis.

Investors will get to see whether or not Apple returned to growth in Greater China on Jan. 28, when the tech giant is scheduled to report its fiscal first-quarter results. 

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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