Apple: Pay attention to emerging markets, not declining sales in China

Apple Chief Financial Officer Luca Maestri disputed investor concerns about an 8% decline in Chinese sales, noting that sales are growing in other emerging markets.

“When we look at places like India, like Saudi Arabia, Mexico, Turkey, Brazil… and Indonesia, the numbers are big, and we are very happy because these are markets where our market share is big. [currenttly] low,” Maestri said Thursday during Apple’s second-quarter earnings call.

Sales fell to $16.37 billion in China in the second quarter

“The populations are large and growing, and our products are really making great strides within those markets,” Maestri continued. “Enthusiasm for the brand is very high.”

One thing Maestri said is verifiable: the population in emerging markets is in fact large and growing. But according to available data, Apple’s growth in those regions is not as rosy as management tried to portray.

Net sales in the Americas – which also include countries such as Brazil and Mexico – fell slightly year-over-year from $37.8 billion to $37.3 billion. Apple’s Q2 2024 report. Sales in the ‘rest of Asia Pacific’, which includes emerging markets such as India and Vietnam, fell 17% from $8.1 billion in the second quarter of 2023 to $6.7 billion as of March 31.

To play devil’s advocate, Apple’s declining sales in those regions may have more to do with pricing than the hype for the product.

Maestri noted that Apple has introduced several financing solutions and trade-in programs that “lower the affordability barrier” so customers can purchase its top product range.

“That is very valuable for us in developed markets, but especially in emerging markets where affordability issues are greater,” said Maestri.

Yet pointing to the beacon of hope that emerging markets could be may not be enough to calm investors. China is Apple’s third largest market and it has become a battleground of fierce competition, with domestic companies like Oppo and Xiaomi dominating the market. According to Counterpoint ResearchHuwaei has seen a huge turnaround in the country after being completely sidelined by US sanctions. The company’s phone sales rose nearly 70% from the previous year, while Apple’s fell 19%. In September 2023, Beijing imposed a ban on the iPhone for government officials in the workplace, following the US action against Huawei.

China and emerging markets aren’t the only negatives on Apple’s balance sheet this quarter. The company also reported a 10% decline in iPhone sales across all markets. Apple’s slow adoption of AI versus competitors like Google and Microsoft may also have played a role in slowing iPhone sales.

Despite unimpressive hardware figures, Apple still managed to exceed Wall Street expectations. It also called for a stock increase of over 10% in after-hours trading, fueled by both a surge in service revenue and a massive $110 billion share buyback – a jump from last year’s $90 billion purchase.

Investors on the call tried to get Maestri and Apple CEO Tim Cook to release some more details about the upcoming generative AI launches, which Apple has teased in recent months, but the executives would only reveal that announcements on hands were.

We’ll keep an eye on Apple’s Worldwide Developer Conference for more news.