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Why Is Apple Inc. Down in China?

By Motley Fool Staff - May 5, 2016 at 5:00PM

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Last year’s enthusiasm for the massive growth potential of the Chinese market gives way to a more muted outlook.

In this clip from the Industry Focus: Tech podcast, Dylan Lewis and Nathan Hamilton talk about why Apple (AAPL -1.80%) is seeing declining growth in the Chinese market, and why it's such a big deal for the company, even though the slight decline it experienced is following a meteoric climb higher.

A transcript follows the video.

This podcast was recorded on April 29, 2016. 

Dylan Lewis: One of the big markets that people have been talking about for quite some time is China, and the huge market potential there. A year ago, the company posted 81% year-over-year growth in mainland China. This quarter, revenue was down 11%, or 7% in constant currency, something you like to focus on. Both of these are less than overall declines, but still not ideal for what everyone considers to be a very high-growth market for them.

Nathan Hamilton: Yeah. And, if I recall, a year ago, we were very big on it, saying, "China's a huge contributor." And it very well will be over time. That was when they were just starting to bring some big telecoms on board, expanding 4G coverage, and you sort of see the uptake when the iPhone expands to a population that didn't really have much of it before. So, you get that hockey-stick growth to it. It has cooled down a little bit. 

It's interesting, because if you looked at the headlines before we record here, see Carl Icahn on the front page of Yahoo! Finance saying, "I've sold my Apple position," and one reason is that China is a concern. For example, they've shut down Apple's services, including the App Store. Those are higher-margin businesses with a huge population. Apple loves their ecosystem, they have to get it out to them, but what if the App Store can't do that? How do they actually get the ecosystem out and expand upon it? It's definitely something to consider.

But, I think, in the grand scheme of things, it's still pretty favorable. There are a lot of favorable factors within China.

Lewis: And Tim Cook made the point here during the conference call, they're taking an 11% dip on 81% growth. That's still a very large segment. And even if it didn't grow year over year, it's still contributing for the company.

Hamilton: The shareholders want the good money. It's disappointing to me. I know we can frame it either way. It's slower growth coming out of blockbuster growth, but you're only as good as what you just did. You have to continue, and offer upgrowth. Otherwise, people will be questioning the future.

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