Business

China saves Apple's quarter (but will it last?)

Apple's Q3 2019 earnings call makes it clear just how reliant Apple is now on growth in China.

Written by Adrian Kingsley-Hughes, Senior Contributing Editor July 31, 2019 at 9:24 a.m. PT

If there was one word that stood out during Apple's Q3 2019 earnings call last night, it was "China."

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China was mention 22 times during the earnings call, which is a lot when you consider that the iPhone was only mentioned 30 times.

It's clear just how important the Chinese market is to Apple these days, and Apple's strong quarter – earnings of $2.18 a share, down 7 percent year-over-year, on revenues of $53.81 billion, an increase of 1 percent over the year prior – was in part as a result of a number of factors, as Apple CEO Tim Cook explains:

"I'd like to provide some color on our performance in Greater China, where we saw significant improvement compared to the first half of fiscal 2019 and return to growth in constant currency. We experienced noticeably better year-over-year comparisons for our iPhone business there than we saw in the last two quarters and we had sequential improvement in the performance of every category. The combined effects of government stimulus, consumer response to trade-in programs, financing offers, and other sales initiatives and growing engagement with the broader Apple ecosystem had a positive effect. We were especially pleased with a double-digit increase in services driven by strong growth from the App Store in China."

In an answer to a question, Cook added a bit more detail to this statement, which goes to show just how many factors had to come into play the last quarter:

"But what happened last quarter in China was a confluence of things. The government stimulus, this came in terms of a VAT reduction, a very bold one. We took some pricing action, we instituted our trade-in and financing programs in our retail stores and worked with certain channel partners on that as well. And we're seeing a growing engagement with the broader Apple ecosystem during the quarter. And so, when you look at it, each of our categories, iPhone, iPad, Mac, wearables, services, everything improved sequentially. So, we couldn't be happier with the progress."

China has been a problem for Apple, not just sales – which have been soggier than Apple expected – but also the fact that the company's manufacturing is tied so closely to the country. But it seems that the measures that Apple took to boost sales in China – along with the VAT (Value Added Tax, similar to sales tax) reduction – made a big difference.

That said, while the quarter was good comparatively, it still wasn't an amazing one. The iPhone generated $26 billion in revenue, down 12 percent compared to last year's June quarter, but it's an improvement on the 17 percent year-over-year decline in Q2.

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