How Important Is China To Apple's Revenue?

Apple issued a rare investor letter last week lowering its quarterly projections to $84 billion, around $4 billion less than what the company made a year ago. The news send Apple's stock plummeting to its largest one-day loss in years. CEO Tim Cook blamed the revenue hit on decreased demand for the latest crop of iPhones, particularly in one key market: China.

Cook gave several reasons for the decreased Chinese smartphone sales, one being the country's economic slowdown thanks to the ongoing trade war between the US and China. Cook's letter said "lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline."

Of course, that's not the whole story. Up until now, China was the third-largest Apple market, making up about 20 percent of its business, according to Apple financial information aggregated by Statista. The US and Europe were the two markets ahead of China, making up 40 percent and 24 percent of Apple's business, respectively.

That number has grown steadily over the past five years, as Apple has sold more iPhones in China and the massive market has made up an ever-growing piece of Apple's revenue pie. The trade war is one issue affecting this year's downturn, but another is increasing competition from Chinese smartphone makers such as Huawei, Oppo and Vivo (both owned by OnePlus), and Xiaomi that simply weren't as much competition a few years ago as they are now.

Cook didn't cite rising iPhone prices as a reason, either, but the fact that an iPhone XS starts at over $1,000 can't be discounted, along with the fact that consumers both in China and around the world are keeping their phones longer.

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As the global smartphone market has begun to stagnate, Apple has looked outside the US for growth, and China is the largest and most lucrative market by far. If geopolitical trade issues persist and domestic competition intensifies, Apple will need a new strategy; otherwise, it may have to alter its expectations even further.