The blocking of Apple mobile entertainment services in China poses fresh
challenges for the tech company as it prepares to report its first-ever
drop in iPhone sales.
The news on Thursday that Apple Inc's
online book and film services had gone dark in China came at a
vulnerable moment for the company. Apple executives have said that
iPhone sales will fall for the first time in the company's second
quarter, and the results for that quarter will be released on Tuesday.
Investors are sensitive to any signs of trouble in Greater China, the
company's second-largest market by revenue.
Apple
executives have flagged the growing services business as a potential
source of revenue as sales of the company's flagship devices level off,
upping the stakes for success in China, said analyst Bob O'Donnell of
TECHnalysis Research.
"It raises questions in an area that we know long-term is going to be very strategically important to Apple," he said.
The
New York Times reported on Thursday that a state regulator demanded
Apple halt the service. The move came after Beijing introduced
regulations in March imposing strict curbs on online publishing,
particularly for foreign firms.
Still, the outage is only
troubling if it persists, O'Donnell said. Apple said in a statement on
Thursday that it hopes to make the services available to customers in
China as soon as possible.
Apple has a strong track record of
working with officials in China, where it has launched a series of
services including mobile payment Apple Pay, but some analysts
questioned whether the company may receive a chillier reception in the
future.
"Is this the beginning of more pressure on Apple by the
Chinese government?" asked analyst of Frank Gillett of research firm
Forrester. "It's a symbolic turn, and the question is to what extent is
it a harbinger."
The company released its book and movie services
in China only late last year, leaving Chinese consumers little time to
form a habit.
"People who are buying iPhones in China aren't
buying them for iTunes," said O'Donnell. "They are buying it for the
status and the cachet of owning an Apple product, and that is really
more about the hardware."
Chinese consumers' appetite for the
phones themselves will be critical to quarterly earnings. Apple is
expected to post its first-ever quarterly drop in iPhone sales, to about
50 million units, reflecting a saturated global market.
Wall
Street expects adjusted earnings per share to drop 14 percent to $2.00
and revenue to drop 10 percent to $52.0 billion (roughly Rs. 3,46,634 crores), according to Thomson
Reuters I/B/E/S.
© Thomson Reuters 2016
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