China worries are haunting iPhone maker, Apple. This is well reflected in the quarterly earnings that showed a massive $5 billion loss in sales from the region.
The 2018 holiday quarter looked painful for Apple. It notched up a sale of just $13.2 billion in Greater China that was paltry when compared to $18 billion it had in 2017 for the same period. But the tech giant is still positive on its China sales outlook.
The lost sales of $5 billion do not look reparable by the small gains in the Americas or elsewhere in the Asia Pacific. Other than China, Apple has suffered sales fall in Europe and Japan as well. Together they may account for another $1 billion in annual decline.
Falling sales of iPhones, Macs, and iPads
Overall, Apple's sales revenue is falling in China for all the flagship products. These include iPhones, iPads and Macs, and foot traffic in Apple stores also down.
Apple CEO Tim Cook admitted while on a call with investors that upgrades to iPhones were on a decline.
Delay or trouble in getting Chinese approval to launch new games to the App Store also affected business, noted Apple CFO Luca Maestri.
In early January, Apple blamed the revenue decline to "economic deceleration" triggered by "rising trade tensions" with the U.S.
Despite a stark revenue decline Apple is not losing cheer on business in China and claims it is well positioned for the future.
Apple's wearable business is doing fine in China with a more than 50 percent growth, Cook noted. The surge in active install base of users is unmistakable even during the holiday quarter.
The company is hoping future business on China will flourish with its offerings from other business segments.
If the iPhone is far from trending, Apple still has Watch, the HomePod, and an entire headphones business in Beats.
The secret of shares gaining while sales are sinking
Apple posting a steep decline in revenue for the holiday quarter has not surprised some analysts. According to Market Watch, the real surprise lies in the company's meek forecast for weaker-than-expected sales for the current quarter. It reasons that slowdown in iPhone sales would pull down revenue going forward.
The outlook on March-quarter predicts a revenue target of $55 billion to $59 billion for the quarter, compared to $59 billion in 2018 and the previous year's $61.1 billion of the same period.
Despite the sales decline, Apple stock bounced more than 5 percent in after-hours trading. The answer to this mystery comes from Wedbush analyst Daniel Ives who sees a few reasons. Speaking with Maket Watch, Ives explained that even though current quarter guidance was below analysts' consensus it is still better than what the market feared. A sub-$55-billion number would have been a shocker.
The other factor is Apple's surging services business, which the company nourished after iPhone sales started stagnating.
Even as iPhone revenue declined, the revenue from software and services jumped more than 19 percent. Ives points to two services disclosures of Apple. One is the gross profit margin and second being the number of paid subscribers.
The gross margin growth of 63 percent for services like Apple Music, iCloud and Apple Pay in the quarter was impressive.
"The line in the sand was 60% gross margins," he said and added the services business of Apple has been underestimated by investors in terms of its high profitability.
This story first appeared in IBTimes US.