Apple’s Christmas spoiled? Doesn’t expect to do well in year-end quarter because of China

Apple investors are eagerly awaiting the upcoming earnings report from the world’s most valuable company, set to be released on Thursday, with a crucial question in mind—could Huawei’s resurgence in China cast a shadow over Apple’s holiday-quarter expectations? The tech giant is poised to disclose its financial results for the July-September period, and its performance is being closely scrutinized as it navigates an uneven recovery in the world’s second-largest economy and contends with heightened competition from Huawei. Notably, Huawei’s new Mate 60 Pro series of smartphones has reported robust early sales, intensifying the rivalry in the Chinese market. As Apple prepares to unveil its earnings, market observers are keen to gauge the impact of these developments on the company’s outlook, especially in the crucial holiday season. The competition in the Chinese smartphone market is of particular significance, as it represents a substantial consumer base that both Apple and Huawei are keen to capture. Apple’s own iPhone 15 line-up has gotten off to a slow start in the crucial international market. Counterpoint estimates China sales of the latest series were nearly 5 per cent lower compared with the iPhone 14 in the first 17 days after launch. “Strength of the iPhone 15 cycle is the key question heading into the December quarter,” Bernstein analysts said, adding that they expected “muted” sales of the device due to a lack of new features, strained consumer spending and competition from Huawei. Huawei sold 1.6 million units of its Mate 60 Pro in six weeks, and brokerages such as Jefferies have said the firm could take back much of the market share in the coming years it lost to Apple after US sanctions in 2019 hammered its business. Those fears, as well as a wider pullback in tech stocks due to high-interest rates, knocked Apple shares down nearly 14 per cent in the three months to October-end, compared with the tech-heavy Nasdaq’s (.IXIC) 11 per cent decline in the same period. But there are signs of an economic pick up in China. Data released last month showed the economy grew at a faster-than-expected clip of 4.9 per cent in the third quarter - though less than the 6.3 per cent expansion in the second quarter - while consumption and industrial activity also surprised on the upside in September. The July-September period marks Apple’s fiscal fourth quarter, and the company is expected to lay down a percentage target for sales growth for the October-December period - its fiscal first quarter that covers holiday-season shopping. Wall Street analysts expect iPhone sales to rise about 6 per cent in the October-December period, according to LSEG data. That is well below historical levels - barring 2022’s holiday season quarter when Chinese COVID-19 curbs curtailed production of high-end iPhones, the average holiday quarter sales growth for the device has been 9.2 per cent in the past four years. However, the fiscal first-quarter projections suggest an improvement from an estimated increase of 2.8 per cent for the three months ended September, marking the largest rise in iPhone sales since the start of this year. Overall revenue is still expected to tick down nearly 1 per cent, dragged by continued weakness in sales of the iPad and Mac, which are expected to fall 15 per cent and 25 per cent, respectively. Apple earlier this week unveiled new MacBook Pro and iMac computers and three new chips to power them. The machines aimed at professional users, come at a time when the PC market is showing signs of a pick up after its over two-years-long slump. The decline in global PC shipments slowed for a third straight quarter in the July-September period, a sign that the market has bottomed out, according to research firm IDC. The global smartphone market contracted 8 per cent in this period, according to Counterpoint. The company’s services business will likely be a bright spot, with estimated growth of 11.3 per cent. The segment has often outpaced growth in Apple’s hardware business in recent years and now accounts for nearly a quarter of its total revenue. (With input from agencies)