Apple iPhone Sales Plunge in China

Apple iPhone Sales Plunge in China
Huawei Emerges Strong.
How will this impact Apple’s Dec. 2024 quarter earnings report?

 
A new report compiled by CNBC using Chinese data warns that foreign mobile phone shipments to China were down -47.4% year over year in November. Apple is the dominant foreign smart phone brand in China, and this development could negatively impact the company’s Dec. 2024 quarter earnings report. Huawei is expected to be the company taking the bite out of Apple. (This is something we warned might become an issue back in Sept. of 2023, when China banned Apple phones for government use.) We’ll know more mid-January, when IDC reports on global smart phone shipments.
 
Here are the topics we’ll cover in this blog.
 
Apple’s Dec. 2024 Quarter Outlook
Worldwide Mobile Phone Sales and Market Share
Apple’s Chinese Sales
iPhone’s Share of Apple Earnings
Apple Share Price and Valuation
 
And here is more information on each point.
 
Apple’s Dec. 2024 Quarter Outlook
During the September 2024 quarterly earnings call, Apple’s CFO Luca Maestri forecasted that Apple revenue would grow low to mid-single digits in the final quarter of 2024. That assumed that the macroeconomic outlook remained stable. However, did it account for a plunge in iPhone sales to China? We have seen this scenario play out before – when Huawei made a solid play for Apple’s dominance in China and even European countries in 2017. In fact, this competition was largely responsible for December 2018 being the worst performance on Wall Street since the Great Depression, with losses of -9.18% in that month.
 
Apple is a prolific purchaser of its own stock, with $25 billion shares repurchased in the September quarter of 2024, and over $100 billion in buybacks over the 12-month period ending Sept. 30, 2024. In Dec. of 2018, when Apple discovered they would miss their earnings outlook (due to Huawei competition), the company stopped their buybacks without warning or notice. The stock market followed Apple’s descent, with coal in the stocking of everyone’s Santa Rally.
 
Worldwide Mobile Phone Sales and Market Share
You might be surprised to learn that Apple is not the #1 mobile phone provider in the world. Samsung is (and has been for most of the past decade).
 

Huawei didn’t show up in the top 5 global smart phone providers (by units). However, the company was mentioned in the IDC press release on Oct. 14, 2024, as having “strong growth.” The next IDC report on the 4th quarter and full year of 2024 should be available mid-January.
 
iPhone’s Share of Apple Earnings
iPhone sales make up almost half of Apple’s earnings. Clearly a plunge in exports of iPhones will have a meaningful impact on Apple’s Dec. quarter earnings.

Apple’s Chinese Sales
Sales to China make up about 16% of Apple’s total revenue. A plunge of almost 50% (47.4%) of Apple’s sales to the region (if that is indeed close to the number) could easily cause the company to miss its revenue projections – something investors are quick to react to.

Apple is discounting its products in China for the Chinese New Year, in an effort to spur sales. While this might help out the Jan. 2025 quarter, it could also spell out a continued weakness in sales. (Lower prices typically equate to lower revenue and net profit.)
 
Apple Share Price and Valuation
Apple’s returns for investors have been one of the happiest stories on Wall Street since the launch of their game changing smart phone in 2006. The company has been on fire. However, we’ve seen Apple’s share price fluctuate wildly over the past decade, even though the company is clearly one of the dominant players in the Magnificent 7, with a market cap of $3.7 trillion. In March of 2020 (the pandemic), the share price dropped -20%. In 2022, the share price dropped from $177.57 to $129.93, a drop of -27%. Of course, each time, Apple soared to even greater heights. However, is that possible as the worldwide economy slows, debt continues to balloon beyond belief, and consumers are forced to cut back on their spending?
 
A price/earnings ratio of 40 is typically reserved for companies with quite strong revenue growth. Meanwhile, Apple is expected to experience low single-digit growth for the final quarter of 2024. If this meager expectation is missed, it will be difficult for investors to justify such a lofty valuation – that a company with a $3.7 trillion value is only earning $94 billion annually. Of course, it is just as concerning that during the quiet period, Apple has a tendency to curtail their buybacks – particularly when they know bad news will be reported, just as they did in December of 2018. Email [email protected] if you’d like an updated Magnificent 7 Stock Report Card.
 
Bottom Line
Apple will report earnings sometime around the end of January or early February. (They haven’t announced the date yet.) However, when you wait for the headlines, it’s too late to protect your wealth. If you are overweighted in Apple, now could be a great time to capture gains and trim back exposure to an age-appropriate, properly diversified plan. January is a great time to do our annual rebalancing of our wealth plan, particularly as the markets have been known to follow Apple’s share price path over the last decade.
 
 

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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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