John Paczkowski

Recent Posts by John Paczkowski

Has Apple Hit a Wall in China?

Great-Wall-of-iPhones-380x285-featureWhen Apple reported earnings for its second fiscal quarter back in April, CEO Tim Cook touted the period as the company’s “best quarter ever in Greater China,” and celebrated the eight percent growth it had seen in the region. Three months later, Apple’s trajectory in China has taken a decidedly different turn, and Cook’s upbeat proclamations about the company’s future in the country have morphed into stalwart reassurances.

In Apple’s latest quarter, revenue from Greater China — which includes Hong Kong and Taiwan — fell 14 percent year over year to $4.6 billion. That’s a 43 percent decline from the previous quarter, the one Cook touted as Apple’s best ever.

What happened?

That’s not entirely clear. Attempting to explain the decline during an earnings call with analysts this week, Cook said that the drop Apple reported in Greater China appears worse than it is because the company better managed its channel inventory. “Our sell-through in China was only down four percent from the year-ago quarter, when you normalize for channel inventory,” he said. He also noted that sell-through in mainland China for the period actually rose five percent year over year. Unfortunately, sell-through in Hong Kong fell by about 20 percent, weighing down sales for the entire region. Why? Said Cook, “It’s not totally clear exactly what occurred.”

That may be so, but the argument could be made that Apple’s recent performance in Greater China would have been much improved by two things: A distribution deal with China Mobile, China’s largest carrier, and a lower-priced iPhone that will appeal to the less-wealthy side of its massive subscriber base, which at last count numbers more than 700 million.

As BTIG analyst Walter Piecyk told AllThingsD, “Apple needs to deliver a low-priced 2.6 GHz TD-LTE phone to China Mobile, and all this unnecessary anguish can be resolved.”

Perhaps, though, Apple needs to continue to up its game in Greater China in other ways, as well — expanding its retail-store footprint and dramatically increasing iPhone availability in the region. Which is exactly what Cook said the company is doing.

“We’re going to double the number of retail stores in China for the next two years,” Cook said. “We’re continuing to lift iPhone point of sales and iPad sales, both of which are currently lower than where we would want them or need them today. But we’re doing that very cautiously with what we want to do with great quality. And so I continue to believe that in the arc of time here, China is a huge opportunity for Apple.”


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