Apple (AAPL) had record quarter in China thanks to iPhone upgrades

Customers try out iPhone 12 smartphones at an Apple store on October 23, 2020 in Shanghai, China.

Wang Gang | Visual China Group | Getty Images

GUANGZHOU, China — Apple raked in its highest ever revenue in the greater China region in the December quarter as a record number of iPhone upgrades helped the U.S. tech giant in one of its most important markets.

Greater China revenue came in at $21.31 billion in the three months ended December 26, up 57% from last year. That was the highest revenue figure for a single quarter in greater China in Apple’s history. Apple also recorded its highest ever quarter for total revenue as it reported fiscal first-quarter earnings on Wednesday.

Apple CEO Tim Cook said the performance in China was “more than an iPhone story,” with other products contributing, but noted the company’s flagship smartphone was crucial.

“China also had a record number of upgraders during the quarter, the most we’ve ever seen in a quarter. I think probably some portion of this was that people probably delayed purchasing in the previous quarter as rumors started appearing about an iPhone,” Cook said on the earnings call.

“Keep in mind that 5G in China is, the network is well established. And the overwhelming majority of phones being sold are 5G phones. And so I think there was some level of anticipation for us delivering an iPhone with 5G.”

What was behind iPhone success?

The iPhone 12 range can connect to next-generation 5G mobile networks which are rolling out fast in China. Apple’s competitors already had 5G phones on the market.

The momentum seen in pre-orders appears to have stuck through the December quarter. In October and November, Apple shipped 11.2 million iPhones in China, according to data provided to CNBC by IDC. The final figures for December have not yet been calculated. IDC tracks so-called sell-in numbers which are iPhones Apple ships to distributors in China.

Separate figures from Shanghai-based CINNO Research estimate Apple actually sold 13.57 million iPhones in the October to December period, which would mark the highest single quarter of iPhone sales in China in history.

Apple shipped 90.1 million iPhones in the fourth quarter of 2020 globally, the largest number ever shipped by any vendor in the history of the smartphones in a single quarter, IDC said. Apple no longer provides iPhone unit sales data.

Will Wong, an analyst at IDC, said two key factors were behind Apple’s success in China — attractive iPhone 12 models and the weakness of Chinese smartphone giant Huawei.

The iPhone 12 and 12 Pro were the most-bought models due to good pricing and features such as screen size, according to Wong.

Meanwhile, Huawei has been hurt by a number of U.S. sanctions that have effectively cut it off from key components like cutting-edge chips, which has opened the door for Apple to take some of its market share.

In China, Huawei and Apple are seen as high-end smartphone players, according to Wong. Huawei has been slowing down supplies of its smartphones to distributors and retailers to make them last longer, Wong said. As a result, these distributors see reduced competition from Huawei.

“The channel partners see the competition to Apple is lesser now and consumers are also likely to shift from Huawei to Apple in China,” Wong said. That has helped Apple increase shipments of its iPhone in China.

Other products ‘above the company average’

Cook also said that Apple’s other products sold well in China.

“We could not have turned in a performance like we did with only iPhone,” the CEO said.

“iPad did extremely well, far beyond the Company average. Mac was about the Company average. Wearables, Home and Accessories was above the Company average. And so if you really look at it, we did really well across the board there.”

Services revenue, which includes money made from the App Store and other products like cloud storage, has become an important part of the Apple story for investors.

In the first few months of each year, Apple usually gets a boost from China because of increased spending by users around Lunar New Year. But in 2020, China went into lockdown in response to the coronavirus outbreak for much of February and March. Now, China generally has the virus under control and in many parts of the country, life is back to normal.

On the earnings call, one analyst asked if the “seasonal bump” may not happen in 2021 due to the prolonged amount of time people spent at home in the previous year.

Luca Maestri, chief financial officer at Apple, said that during the lockdown in China the “propensity for playing games continued for several weeks, more than a typical cycle.”

He said that Apple expects “to have a great (March) quarter in China” but warned the comparison “is going to be particularly challenging because of what happened a year ago.”



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