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iPhone's Likely China Surge Giving Apple Holiday Bright Spot

iPhone's Likely China Surge Giving Apple Holiday Bright Spot

By Shai Oster, Bloomberg | Updated: 14 January 2016 09:43 IST

China shipments of smartphones from Apple, Microsoft and other makers that don't use the Android operating system rose by about 33 percent in the final quarter of last year, according to government and analyst data, indicating strong sales for the iPhone in its largest market outside the United States.

About 24.3 million smartphones not powered by Google Inc.'s software shipped within China between October and December, according to data provided by the China Academy of Telecommunication Research, a research arm of the Ministry of Industry and Information Technology. That total, the vast majority of which would be comprised of iPhones, increased by a third from the same period a year earlier, Marbridge Consulting said in an email.

"This would be a surprise," Alberto Moel, an analyst for Sanford C Bernstein in Hong Kong, said in an email. "Consensus is not pricing in any major blowout in Q4 for Apple, so this would be counter to the current investor sentiment."

Expectations that iPhone sales are faring worse than anticipated have depressed shares of Apple and its main rivals and suppliers, including Samsung Electronics and Hon Hai Precision Industry. Samsung last week reported fourth-quarter earnings below analysts' estimates, the latest sign the global smartphone market is running out of steam as markets mature and China's economy decelerates.

"In hindsight, 2015 was a depressing year for tech hardware," HSBC Global Research analysts Steven Pelayo and Lionel Lin wrote in a Jan. 12 report. "Weak end demand resulted in excess supply across the supply chain, leading to a focus on purging excess inventories for much of the year."

China is an increasingly critical component of Apple's business, helping it sell a record 13 million iPhones during the September debut-weekend of its latest handsets. Apple doubled its revenue from the country for the quarter ended September to $12.5 billion.

(Also see: Apple Closes 'Most Successful Year Ever' With Record iPhone Sales)

The company has at least 28 stores in China and expects to operate 40 by mid-year.

"If they really did well in China last quarter, then it is very important for Apple, especially given all of the investments that Apple has made in building up its presence there," Bryan Ma, a Singapore-based analyst at research firm International Data Corp., said in an email. The non-Android segment also could include local Chinese operating systems, he said.

Yet demand in China is dwindling after years of scorching growth: smartphone shipments were on pace to grow about 1 percent last year after increasing 20 percent in 2014 and 64 percent in 2013, according to IDC. Domestic brands Xiaomi Corp. and Huawei Technologies are moving into the mid- and high- end segments, challenging Apple and Samsung for market share.

Apple shares finished below $100 for the first time in over a year on Jan. 8 after analysts, including UBS and RBC Capital Markets, lowered their estimates for iPhone sales. Apple, which gets the majority of its revenue from the iPhone, reports financial results for the holiday quarter on Jan. 26. The Cupertino, California-based company is predicting record revenue, partly because of strong Chinese demand.

Total smartphone shipments in China last year rose nearly 18 percent from the previous year to 457 million units, the industry ministry said. That included 388 million phones using Android.

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