HONG KONG (Reuters Breakingviews) - Apple's next iPhone will be key to its future in China. Sales in what was once the company's biggest growth market have now fallen for five straight quarters. Stiff competition with local handset makers and a weaker yuan have both hurt. While app-store sales are promising, a real turnaround hinges on the success of its much-anticipated, 10th-anniversary smartphone.
On Tuesday, the Californian giant reported another set of bleak results for Greater China. Revenue in mainland China, Hong Kong, Macau and Taiwan fell more than 14 percent year on year to $10.7 billion in the quarter ending April 1. That is a sharp reversal from two years ago, when regional sales were soaring on back of the hugely popular iPhone 6.
Graphic: Apple earnings: tmsnrt.rs/1WQvKWe
Boss Tim Cook blames a mixture of factors, including a 5 percent currency devaluation, a tourism slump in Hong Kong, and weak sales of older iPhone models. The $772 billion colossus was counting on these slightly lower-end handsets to broaden its base of customers in up-and-coming bits of China, which is already the world's biggest smartphone market.
Instead, Apple shipments tumbled by almost a quarter last year as home-grown rivals such as Huawei and OPPO offered cheaper alternatives, IDC data shows. As a result, Apple's market share in China has fallen to less than 10 percent of handsets by volume in 2016, down from 13.6 percent the previous year - although it probably accounts for a much larger slice of the profit pool.
Apple remains optimistic. It points to double-digit percentage growth in sales of services, such as app store purchases. Apple gave no further detail, but analysts at App Annie reckon Chinese iPhone users in total now spend more on games, programs and subscriptions than those in any other market.
Problem is, iPhones still make up some 90 percent of revenue in China, according to analysts at Cowen and Co. Given the difficulties Apple faces expanding in the mid-market, wowing new users with its next flagship phone will be critical.
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