Apple (NASDAQ: AAPL) dropped a bomb on Jan. 2 when it slashed its guidance for the December-finished quarter on account of weaker-than-anticipated iPhone sales.
The letter to investors, signed by CEO Tim Cook, blames weak iPhone sales in Greater China. Cook believes that China's economic growth and trade tensions with the U.S. led to a decline in retail traffic in the region. A drawing of a bear standing in front of a line depicting a stock crash. ” src=”https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F507768%2Fbear-market-crash-stock-decline-bearish.jpg&w=700&op=resize”
Apple's "premium" bubble has burst
China's economy grew 6.8% during the first quarter of 2018, but growth slowed down to 6.5% by the third quarter. That despite the slowdown in the country's official 2018 growth target.
But despite the slowdown, shipments of smartphones made by Chinese original equipment manufacturers. Vivo, OPPO, and Huawei saw jumps of 14%, 7.5%, and 6.6%, respectively, in their shipments during the third quarter of 2018 as compared to the second quarter.
Apple, on the other hand, witnessed a 10 % decline in shipments over the same period. Clearly, the iPhone maker is losing market share in China to local OEMs, who are not just capitalizing on the increased preference for domestically produced products in the light of the US, but are also coming up with innovative devices at competitive prices.
Huawei has displaced Apple as the second-largest smartphone company globally, thanks to its strategy of offering feature-packed premium phones at lower price points compared to Apple's lineup.
It makes sense to conclude that Apple's strategy of boosting
It's just a China problem
In fact, Apple's problems run deeper than just the Chinese market, which is the company's third-largest source of revenue with 18% of the total top line. Cook has admitted that the upgrade cycle to new has slowed down.
In India, recent iPhone sales in the country fell 50% in 2018 to just 1.6 million to 1.7 million units. That's a stark contrast from 2017, when the company's shipments into this lucrative smartphone market had doubled.
Cook can not make the excuse of slowing economic growth as the reason behind this poor performance in India because the Indian government expects the economy to
Sales trends in the market clearly indicate that consumers prefer lower-priced but powerful phones from the likes of OnePlus , which shipped 500,000 units in India during the final quarter of 2018 via Counterpoint Research.
In all, Apple's strategy of boosting iPhone prices is backfiring, which is why it's becoming very expensive to cook.
The possible solution
It would be out of character for Apple to reduce prices at a time when the company is looking at offset units with higher average selling prices (ASPs). But that's probably what the company needs to do with it. "
There's evidence suggesting the same. Apple's sales in price-conscious India had increased in the 2017 fiscal year. Models looking for the iPhone SE and the iPhone 6S were substantially boosted by Apple's sales in that market.
But Apple subsequently failed to deliver in India
Thus, Apple needs to lower its price to defend its own market share or it needs to come up with well-priced and well-equipped devices that can compete effectively. It might be difficult to sustain the impressive growth of its business services.
In all, Tim Cook needs to bring new users into the iPhone ecosystem, and that means making the devices more accessible to users.
If Cook does not take corrective steps soon enough, Apple's sales will continue heading in the wrong direction.