Apple's China growth slows as profits dip

Updated: 2013-04-24 11:52

By Yu Wei in San Francisco (China Daily)

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Apple Inc reported slower sales growth in China during its most recently completed quarter, as the gadget maker saw its first profit decline since 2003.

For the company's second fiscal quarter, which ended on March 30, net profit was $9.55 billion, or $10.09 a share, down 18 percent from the $11.6 billion, or $12.30 a share, recorded a year earlier. Revenue increased 11 percent to $43.6 billion.

Analysts had projected quarterly revenue of $42.6 billion and per-share profit of $10.07 for the Cupertino, California, company.

Despite edging out Wall Street estimates, better-than-expected sales for the quarter initially sent Apple shares higher in after-hours trading. After gaining 6 percent, however, they later fell 0.5 percent to $404 during an earnings conference call. The shares closed on Tuesday at $406.13, before the earnings announcement.

The company moved to counter skepticism of its stock by increasing the dividend 15 percent, to $3.05 a share, and the size of its stock-buyback program, to $60 billion from $10 billion. Apple has amassed a cash-and-investment pile of nearly $145 billion.

Sales of Apple's most popular devices remained strong during the recent quarter.

It sold 37.4 million iPhones, compared with 35.1 million in last year's fiscal second quarter. Sales of iPads totaled 19.5 million, up from 11.8 million a year ago.

CEO Tim Cook credited that "continued strong performance" for the quarter's profit.

"Our teams are hard at work on some amazing new hardware, software and services, and we are very excited about the products in our pipeline," he said.

According to DRAMeXchange, a Taiwan-based firm that tracks production of microchips, South Korea's Samsung Electronics Co accounted for 30 percent of the global chip market during this year's first quarter. Apple had a 17.3 percent share, compared with 16.1 percent in the fourth quarter of 2012.

A slower pace of sales in China raised fresh concerns that Apple is feeling the effect of reduced demand in what remains its fastest-growing and second-biggest market.

However, the company said revenue increased 11 percent to $8.8 billion in the Chinese mainland, Hong Kong and Taiwan, which was much slower than in Apple's fiscal first quarter, when the iPhone 5 was introduced in China. In that period, sales sailed at 67 percent, far outpacing growth of 15 percent in the Americas and 11 percent in Europe.

About two-thirds of Apple's revenue came from international sales in the latest quarter.

In China, iPad sales soared 138 percent year-on-year, and Apple set records for iPhone, Cook said. The CEO expects to double the number of Apple stores in China, to 22, in less than two years, which would add 8,000 points of sale for iPhones, bringing the total to 19,000.

Carolina Milanesi, an analyst with technology research firm Gartner Inc, said its performance in China is crucial to Apple's success.

"Apple has stated the importance of China already. Tim Cook stated during previous earnings calls the importance of the Chinese market. Furthermore, we have seen Apple cater to the Chinese market with specific local content," she said.

"Apple is also using China to learn about other emerging markets," Milanesi added, citing Latin America as a region where the company has increased its focus.

The company has had a strained relationship with China in recent months, including claims that iPhone warranties discriminated against Chinese customers. Negative publicity led the company in early April to apologize, in a letter signed by Cook, to Chinese consumers and announce changes in some warranty terms.

"Its sales in China should improve as a result, but one should not expect dramatic change from past sales in China," said Kenneth Kraemer, a business professor at the University of California, Irvine.

Greg Linden, a business-innovation researcher at the University of California, Berkeley, said Apple clearly wants to participate in China's economic success and has demonstrated flexibility toward that goal.

"The speed with which it responded to the warranty issues probably headed off major harm to its image," he said. "But Apple's image worldwide is what will drive its long-term level of success in China."

Despite China's importance, "the company's primary need is to continue creating innovative products for major world markets, of which China is just one", Linden said. "Of course, Apple's China-specific measures help to unlock its potential there."