Apple faces worst iPhone decline since Covid as China rivals rise

(Bloomberg) — Apple Inc.'s iPhone shipments fell a worse-than-expected 10% in the March quarter, reflecting weak sales in China despite a broader smartphone industry recovery.

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The company shipped 50.1 million iPhones in the first three months, according to market tracker IDC, below the average analyst estimate compiled by Bloomberg of 51.7 million. The 9.6% year-on-year decline is the largest for Apple since coronavirus lockdowns crippled supply chains in 2022, the researchers said.

The Cupertino, California-based iPhone maker has been struggling to maintain sales in China since its latest model debuted in September. The return of competitors from Huawei Technologies Co. To Xiaomi Corp. And Beijing's ban on foreign devices in the workplace are all factors that have affected sales. IDC data provides the first snapshot of the global performance of Apple's most important product ahead of earnings on May 2.

The decline in iPhone shipments is significant given that the overall mobile phone market posted its best growth in years. Smartphone makers shipped 289.4 million phones in the period, representing a 7.8% increase from last year's lows, when many manufacturers were grappling with a glut of unsold devices. Samsung Electronics regained top spot in the March quarter, while budget-focused Transsion increased shipments by 85% and Xiaomi rebounded to close the gap with second-place Apple.

“The smartphone market is emerging from the turmoil of the past two years stronger and changed,” said Nabila Popal, research director at IDC. “Although Apple has been very resilient and has seen a lot of growth in shipments and share over the past few years, it will be difficult for it to maintain the pace of growth and peak share it saw in 2023. As the market recovers further and in 2024, IDC expects Android to grow much faster than Apple.

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Leading Apple supplier Hon Hai Precision Industry Co. and Murata Manufacturing Co. and LG Innotek Co., in Asian trading on Monday, amid widespread selling due to fears of escalating conflict in the Middle East.

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Xiaomi's first-quarter phone shipments of 40.8 million units, according to IDC, jumped 33.8% year over year while Apple and Samsung both fell. Its strong mobile phone sales are likely driven by a recovery in its overseas markets and could lead to double-teen sales growth in the first quarter.

– Stephen Tseng and Shawn Chen, analysts

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During the pandemic, Apple's iPhone has shown the most resilience as consumers have pulled back on smartphone purchases from most of its Android-powered rivals. This inventory buildup has led to aggressive pricing by Chinese competitors like Xiaomi, which took months to exhaust inventory and is now starting to ramp up shipments again. Huawei's surprise return to prominence last year — with its made-in-China chip and HarmonyOS operating system in the Mate 60 series — has eroded Apple's premium market share in China since August.

“Increasing competition in China accounts for a large part of Apple's decline in the first quarter,” Bhopal said. Elsewhere, a number of regions started the year with excess stock of iPhones after heavy shipments in the final months of 2023, she added.

IDC researchers found that average selling prices for cell phones are rising, as consumers increasingly choose premium models that they intend to keep longer. Apple, which consistently maintains the highest ASP in the industry, has led the way in this, with consumers showing a clear preference for its higher-end models. However, this year the company resorted to unusual discounts to stimulate sales, with some retail partners in China taking up to $180 off the regular price.

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In March, Apple opened a new large store in the center of the financial center Shanghai, with CEO Tim Cook in attendance. China hosts the company's largest retail network outside the United States and accounts for nearly a fifth of sales, driven largely by the iPhone. Many of the attendees who spoke to Bloomberg at the Shanghai event had gotten their iPhones more than two years ago. While Apple fans said they intend to stay within the company's ecosystem, some said they would also consider a successor to the Huawei Mate 60 or foldable device options from competitors.

–With assistance from Jessica Sui.

(Updates with details from second paragraph)

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