Apple overcomes China blues for now

July 24, 2013

By Robert Cyran

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

Apple has overcome its China blues for now. One of the tech giant’s most reliable engines for growth has been booming Chinese demand. It flamed out during the quarter ended June 29, however, with revenue from the Middle Kingdom shrinking 14 percent. Solid sales in the larger U.S. market helped compensate, leaving revenue flat compared with the same period last year at $35 billion. But the performance shows just how badly Apple needs new products if it wants to shine again.

Greater China now accounts for 13 percent of all the company’s sales, or close to $5 billion in the last quarter. That’s about ten times the amount of Chinese sales four years ago, so a slowdown or decline is troubling.

The company pointed to several mitigating factors during its earnings call. Changes in inventory rather than lower demand, for example, accounted for much of the drop in sales, it said.

The results could also be a temporary stumble prompted by a slew of negative stories that ran earlier this year in the Chinese media about Apple products. The bad publicity could soon blow over, clearing the way for a resumption of strong growth. In any event, as chief executive Tim Cook pointed out, 90 days of sales are just a blip in the company’s long-range performance in China.

Still, this is the first sign that Chinese demand for Apple products isn’t insatiable. That could be bad news for future revenue growth. Moreover, the company’s margins have steadily declined over the past four quarters. That helps explain why earnings fell 22 percent last quarter.

These trends increase pressure on Apple to develop something new to sell. The company is notoriously tight-lipped about product launches, promising merely that this fall will be “busy.” But investors can maintain hope for only so long that a new wristwatch, television or other catchy gadget will emerge from Apple labs. It’s high time the company delivered.

 

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