Apple’s iPhone sales in China were decimated last month as the novel coronavirus outbreak slashed demand for smartphones. But analysts predict a big recovery is just a few months away.
Apple (AAPL) sold fewer than 500,000 iPhones in China in February, according to government data released this week, a plunge of more than 60% compared to the same month last year. The drop undercut progress the company had been making in its bid to close the gap with Chinese rivals. Sales for the iPhone jumped in December, propelling Apple (AAPL)’s stock to a record high on Wall Street earlier this year.
The coronavirus outbreak slowed Apple’s momentum, but it handicapped domestic rivals, too. Overall smartphone sales in China fell 55% in February to 6.3 million compared to the same period last year. Analysts say everyone will be competing to make up for lost sales later this year.
“These are doomsday type of iPhone units and overall smartphone sales which are not surprising given the essential lockdown that most of China saw during the month of February,” Wedbush analyst Dan Ives said in a note Monday.
The outbreak escalated just before the critical Lunar New Year period, when holiday shoppers usually give a huge boost to retail sales. Instead, business activity ground to a halt as millions of people hunkered down and travel restrictions were placed on more than half the country.
But Ives and other analysts predict a “massive” opportunity for Apple soon: The company is expected to roll out a 5G iPhone model later this year.
Ives estimates roughly 70 million iPhones in China could be upgraded to 5G models, and predicts Apple will start converting those customers starting in the April-June period.
Will Wong, an analyst with research firm IDC, also predicts a turnaround for Apple in the next few months.
The second half of the year “will be the key recovery period for the overall Chinese smartphone market and also for Apple, as both the (coronavirus outbreak) situation and consumer sentiment hopefully improves,” he said.
But Apple will face strong competition from Chinese rivals, such as Huawei, as they will also be competing hard to make up for the downturn in the first half of 2020, said Wong.
Huawei and other Chinese smartphone makers already launched several 5G models in China last year, giving them a head start over Apple.
Apple has lagged behind domestic rivals in China for years when it comes to smartphone sales, and that trend is unlikely to change.
Because Apple mainly sells expensive phones to wealthy customers, it can only go after so much of the market. Meanwhile, competitors offer a bigger range of phones at varying price points.
Last year, Apple was the fifth largest smartphone seller in China, with just under 9% market share, far behind Huawei which had over 38%, according to IDC data.
But with its reputation as a premium brand, Apple can sell a lot fewer phones than companies such as Vivo, Oppo and Xiaomi, and still take a bigger slice of the billions of dollars Chinese customers spend on smartphones.
Looking at the dollar value of China’s smartphone market, Huawei is still No. 1, with 40% market share for 2019, but Apple comes second with 21%, according to Wong, of IDC.
Brokerage firm Jefferies says 5G phones will drive upgrades in China this year and next. And when that happens, Apple will not only hold on to its users in China, but also convert some Huawei owners to buy iPhones.
A Jefferies survey published last month found that about 17% of respondents in China are using an iPhone, but more than 21% want it as their next phone.
“iPhone users are also the most loyal — 60% of current users would buy another iPhone, versus only 37% for (Huawei),” Jefferies said. Moreover, “nearly a quarter of current Huawei users said they want to switch to an iPhone.”
Apple and other companies have been trying to return to business as usual in China, as the coronavirus outbreak escalates in other countries. The virus has killed 4,018 people so far, and sickened more than 113,000 people around the world, but the pace of infections in China has slowed recently.
Foxconn (HNHPF), the main assembler of iPhones, said it expects to resume normal production by the end of March. Its factories in China had been operating at reduced capacity for more than a month.
Apple shut down all of its 42 stores in mainland China in early February. All but four have now reopened.
