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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Apple Inc.    AAPL

APPLE INC.

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Apple Aims to Halt China Sales Slide -- WSJ

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09/21/2019 | 03:12am EDT

New phones have more cameras, lower prices; competitors slice into market share

By Tripp Mickle in San Francisco and Yoko Kubota in Beijing 

Apple Inc.'s store in Beijing's trendy Sanlitun neighborhood was crowded Friday with shoppers checking out the latest iPhones -- but the real test for the iPhone 11, analysts say, will be whether it can sustain interest in the months ahead as trade tensions simmer and competitors release 5G handsets.

Apple stores world-wide began selling the new iPhones Friday. The base iPhone 11 model features a second-rear camera and a $699 price tag, $50 less than its predecessor's. The iPhone 11 Pro models feature the same starting price as their predecessors, $999, but offer a third rear camera and ultrawide photos.

The tech giant has been under fire in China, where phones with similar features and lower prices from Huawei Technologies Co. and others have sliced into its market share.

Sales in Greater China, including Hong Kong and Taiwan, plunged 20% to $32.54 billion for the three quarters ended in June, the company reported in July. While that figure includes the iPhone as well as other Apple devices, executives have noted weakness in the performance of the company's smartphones in its second-largest sales market.

In a bid to end those declines, Apple introduced new iPhones this month that address camera and price, previous models' weaknesses in the eyes of consumers.

Camera technology has become an important differentiator in China, where Huawei has walloped Apple and others, amassing a 38% smartphone market share in the June quarter, according to research firm Canalys, after introducing a triple-rear camera model last year. Meanwhile Apple had a 6% share of the market, ranking fifth among companies, and that percentage was down from the prior year.

Apple's best standing in China was in 2015 when it was the third-largest smartphone seller with a nearly 13% market share, according to Canalys data.

The iPhone Pro's triple-rear camera may help Apple catch up to its biggest Chinese rival and give customers a reason to pause before considering switching to Huawei.

The new features, along with the familiarity of using the iPhone, were enough to persuade 28-year-old Gao Zhenzhen to plan an upgrade from her iPhone 7 at the Apple Store in Sanlitun.

"It's because I'm used to iPhones," Ms. Gao said.

Apple's high prices have contributed to its slowing China sales, analysts say. Slashing $50 off the price of the iPhone 11 compared with last year's XR should help broaden the appeal of the company's lowest-priced new model. Apple also aggressively touted trade-in offers world-wide that further discount retail prices.

The lower prices and trade-in offer helped persuade Aaron Lee, 35, to buy a new iPhone 11 for around 3,100 yuan ($440) after trading in his XR model. "The price has reached a level where it's convenient enough," Mr. Lee said.

Many consumers still consider Apple's phones too pricey.

Zhang Tao, a 46-year-old taxi driver in Beijing, prioritizes affordability in choosing mobile phones. "The features of domestic phones are getting better and better," said Mr. Zhang, who currently uses an Oppo R15.

Apple's challenges in China are expected to intensify as local handset makers introduce models with 5G, a new, speedier generation of wireless technology.

Huawei introduced its Mate 30 model with 5G on Thursday and Xiaomi Corp., Oppo and Vivo are expected to release 5G-capable devices before year-end.

Chinese consumers have been anticipating the arrival of 5G and consider it a core technology for a premium handset, said Mo Jia, a Shanghai-based analyst for Canalys. "This is, of course, a significant weak point for Apple in terms of premium smartphones," he said.

Apple also is battling U.S.-China trade tensions that could sour some Chinese consumers on U.S. brands. The company has largely stayed out of the crossfire, but its reliance on China for a fifth of its total sales makes it vulnerable if China retaliates against continued pressure from U.S. tariffs.

The combination of 5G and trade, as well as perceived lackluster features on the iPhone 11, has Nomura Instinet analyst Jeff Kvaal doubting Apple will gain market share in China over the next year.

"This upgrade simply isn't all that dramatic," Mr. Kvaal said of the new iPhones. "Typically, they offer refreshes with more dramatic upgrades than adding a camera."

Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.

Write to Tripp Mickle at Tripp.Mickle@wsj.com and Yoko Kubota at yoko.kubota@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. -0.23% 239.96 Delayed Quote.52.47%
KUBOTA CORPORATION 1.37% 1739.5 End-of-day quote.14.33%
NOMURA CO., LTD. 1.23% 1321 End-of-day quote.-46.08%
NOMURA HOLDINGS, INC. 1.59% 491.2 End-of-day quote.18.99%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.06% 7.0793 Delayed Quote.3.00%
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Financials (USD)
Sales 2019 259 B
EBIT 2019 63 379 M
Net income 2019 54 363 M
Finance 2019 102 B
Yield 2019 1,25%
P/E ratio 2019 20,5x
P/E ratio 2020 18,9x
EV / Sales2019 3,79x
EV / Sales2020 3,67x
Capitalization 1 084 B
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Mean consensus OUTPERFORM
Number of Analysts 45
Average target price 230,24  $
Last Close Price 239,96  $
Spread / Highest target 20,4%
Spread / Average Target -4,05%
Spread / Lowest Target -37,5%
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Managers
NameTitle
Timothy Donald Cook Chief Executive Officer & Director
Arthur D. Levinson Chairman
Jeffrey E. Williams Chief Operating Officer
Luca Maestri Chief Financial Officer & Senior Vice President
Kevin M. Lynch Vice President-Technology
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