Apple Inc. (NASDAQ: AAPL) reported its first quarter 2024 results on February 1. According to the press release, the company reported revenue of $119.6 billion, up 2% year-over-year, and earnings of $2.18 per share, up 16%. . The company highlighted that its service revenues reached a new all-time high and its profits also reached a new all-time high. Apple’s installed base of active devices surpassed 2.2 billion, reaching an all-time high across all product and geographic segments. Overall, first quarter earnings were in line with expectations. However, the stock was down a bit the next day.
Turnover by sales category
The company’s services revenue increased 11.3% year-over-year. This is encouraging because it shows the growing power of Apple’s iOS ecosystem. On the hardware side, sales of iPad and wearables, home and accessories declined during the quarter. iPad sales declined 25.3%. CEO Tim Cook’s explanation for the year-over-year decline during the earnings call was difficult to compare with the launch of the iPad Pro M2 and 10th generation iPad during the quarter of December last year and one week less sales. Wearables, home and accessories revenue declined 11.3%. Again, the decline is also due to a difficult comparison with the launch schedule of several products in this category and the impact of the 14th week last year. Macbook sales increased 1% year-over-year. Cook noted that the increase was due to the strength of Apple’s latest M3-powered MacBook Pro models, despite one fewer week of sales.
Apple’s most important business is obviously the iPhone, which represents 58.3% of the quarter’s revenue. iPhone revenue grew 6% year over year, slower than the overall growth of the global smartphone market, but faster than that of its biggest competitor Samsung (XKRX: 005930 ).
According to preliminary data from the International Data Corp. Worldwide Quarterly Mobile Phone Tracker, global smartphone shipments decreased 3.2% year-over-year to 1.17 billion units in 2023. The fourth quarter (4Q23) saw growth of 8 .5% year over year and 326.1 million units. shipments, higher than growth forecasts of 7.3%.
The iPhone’s market share reached an all-time high and Apple overtook Samsung to become the top player for the first time.
Problems in China
The iPhone obviously had a great quarter, but there was one worrying sign: Apple’s revenue in China declined by double digits during the quarter.
During the earnings conference call, China’s weaker performance was brought up several times by various Wall Street analysts. Cook seemed optimistic about China in the long term, but it is almost guaranteed that the iPhone will lose market share in China in the future due to Huawei’s return.
Huawei’s smartphone business was virtually decimated after the United States sanctioned Huawai in 2019. According to Counterpoint Research Global Smartphone Tracker and Forecast, the company’s market share fell from more than 30% to less than 6%. % in 2022.
When the United States sanctioned Huawei, it seemed game over because the company couldn’t get the high-end chips it needed to produce its smartphones. However, after more than four years of sanctions, Huawei miraculously returned and announced its high-end 5G Mate 60 and Mate 60 Pro smartphones at the end of August. Both devices immediately became bestsellers in China after their launch. This had an immediate impact on the iPhone’s market share in China.
According to Counterpoint’s latest report on the Chinese market, Huawei’s “shipments soared 41% year-on-year in the third quarter of 2023, as its new Mate 60 series with Kirin SoC gained momentum immediately after its launch. Apple also saw a slight year-over-year decline. increase in shipments driven by the new iPhone 15 series, but initial supply constraints impacted its overall performance. For the fourth quarter of 2023, Apple’s iPhone shipments in China fell 2%, while Huawei’s shipments increased 36.20%.
Clearly, Huawei has been taking market share from Apple in China since the launch of the Mate 60 and Mate 60 Pro. The challenge for Apple with the return of Huawei is at least twofold. First of all, it is very likely that Huawei will continue to take market share from Apple in China in the near future. Second, Huawei may be able to take market share from Apple outside of China if its momentum can extend overseas. Given Huawei’s track record, I wouldn’t bet on Apple maintaining its global market share in the future. If Apple fails to maintain its global market share, Apple’s fundamentals are obviously likely to be affected.
Apple’s overall first quarter results were very satisfactory. However, its business has declined in China, which is its third largest geographic market, mainly due to Huawei’s launch of new high-end products. If Huawei succeeds in its future product launches, Apple’s business in China and around the world could be affected. Investors should keep an eye on Huawei.
This article was first published on GuruFocus.