Apple faces worst iPhone slump due to rise of Covid-19 China rivals

(Bloomberg) — Apple Inc . ’s iPhone shipments fell a worse-than-expected 10% in the March quarter, reflecting flagging sales in China despite a broader smartphone sector recovery.

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The company shipped 50.1 million iPhones in the first three months, according to market tracker ITC, just shy of the average analyst estimate of 51.7 million compiled by Bloomberg. The 9.6% year-over-year drop is Apple's steepest since Covid lockdowns disrupted supply chains in 2022, the researchers said.

The Cupertino, California-based iPhone maker has struggled to maintain sales in China since the launch of its latest model in September. Huawei Technologies Co. From Xiaomi Corp. A resurgence of rivals and Beijing's ban on foreign devices in the workplace have all weighed on sales. The ITC data provides the first snapshot of the global performance of Apple's most important product ahead of earnings on May 2.

The decline in iPhone shipments is significant, with the overall mobile market posting its best growth in years. Smartphone makers shipped 289.4 million handsets during the period, marking a 7.8% jump from the year-ago trough, as many manufacturers struggled with unsold devices. Samsung Electronics Co. It regained the top spot in the March quarter, while budget-focused Transsion grew shipments by 85% and Xiaomi moved back to close the gap on second-placed Apple.

“The smartphone market is strong and changing from the turmoil of the last two years,” said Nabila Bhopal, research director at IDC. “Although Apple has seen strong growth in shipments and shares over the past few years, it will be challenging to maintain the peak share it saw in 2023.” ITC expects Android to grow much faster than Apple in 2024 as the market recovers further.

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Famous Apple suppliers Hon Hai Precision Industry Co., Murata Manufacturing Co. and LG Innotek Co. Asia fell in trade on Monday, amid a broader sell-off on fears of escalating conflicts in the Middle East.

Here's what Bloomberg Intelligence says

Xiaomi's 1Q handset shipments were 40.8 million units, up 33.8% year-on-year, according to IDC, while Apple and Samsung both fell. Its strong handset sales were driven by a recovery in its overseas market, leading to higher teenage sales growth in the first quarter.

– Steven Cheng and Sean Chen, analysts

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During the pandemic, Apple's iPhone showed a huge backlash as customers shied away from buying smartphones from its Android-powered rivals. That inventory build-up led to aggressive pricing by Chinese rivals like Xiaomi, which took months to reduce stocks and is now starting to ramp up shipments again. With its own Chinese-made chip and HarmonyOS operating system in the Mate 60 series — Huawei returned to prominence last year — it has been eroding Apple's share of China's premium market since August.

“Increased competition in China was a big part of Apple's decline in Q1,” Popal said. Elsewhere, several regions started the year with excess iPhone inventories after higher shipments in the final months of 2023, he added.

Average selling prices for handsets are rising as consumers opt for premium models they want to hold longer, IDC's researchers found. Apple, which continues to maintain the highest ASP in the industry, has led to this, with consumers showing a distinct preference for its high-end models. However, the company has resorted to extraordinary discounts to spur sales this year, with some retail partners in China taking up to $180 off the regular price.

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In March, Apple opened a massive new store in the financial hub of Shanghai, with CEO Tim Cook in attendance. China hosts the company's largest retail network outside the US and drives about a fifth of iPhone sales. Many of the attendees who spoke to Bloomberg at the Shanghai event got their iPhones two years ago. While those Apple fans said they wanted to stay within the company's ecosystem, some said they would also consider Huawei's Mate 60 successor or foldable device options from competitors.

–With help from Jessica Sue.

(Updates with details from 2nd column)

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