Apple's Recovery In China Threatened by Competitors' 5G

Apple Inc. AAPL sales in China during its fourth fiscal quarter were better than it was in its third quarter, thanks to the good reception that the iPhone 11 line up enjoyed in the region, Apple said in its latest quarterly report released on Wednesday.

What Happened

Sales in greater China, which includes mainland China, Hong Kong, and Taiwan, dropped by 2.4%, compared to a dip of 4.1% in the quarter from April to June.

The situation in China has improved significantly over the last twelve months. Apple had suffered a 27% decline in this region during the quarter that ended December 2018, Apple chief financial officer Luca Maestri said during the call.

"We had a really good September [in China], and the lead of that is the reception of iPhone 11, 11 Pro and 11 Pro Max," CEO Tim Cook said during the earnings call. " We've gone from minus well into the 20s to minus 2 last quarter."

Potential Challenge

Analysts, however, caution that the impending rollout of the 5G network in China could disrupt Apple’s recovery in the country. Competitors Samsung Electronics Co. Ltd SSNLF, Huawei, and Xiaomi Corp (HKG: 1810) have already revealed their first 5G-enabled phones.

"Apple is more prepared than previous years to face strong headwinds in China," Shanghai-based Canalys Research Analyst Louis Liu said. "Its iPhone 11 models focused on camera improvements, which proved desirable to Chinese consumers. More importantly, a lower launch price of iPhone 11 and a more flexible channel margin structure for local distribution on the new devices, were critical market stimuli for Apple." Liu warned, however, that intensifying marketing and promotion for 5G in China "could steal its thunder."

What's Next

As for Apple, consumers will have to wait until 2020 to have 5G-compatible iPhones, if sources cited by Japanese media outlet Nikkei are correct. The company has started speaking with suppliers to produce the first models of 5G iPhones, which will launch next year, according to Nikkei.

Apple reported earnings of $3.03 per share on $64.04 billion in sales. Analysts were expecting earnings of $2.83 on sales of $62.99 billion, Refinitiv data shows.

Apple stock traded 2.03% higher in after-hours trading following the report.