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Business News/ Tech-news / News/  Apple iPhone sales in China seen surpassing US for first time
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Apple iPhone sales in China seen surpassing US for first time

The iPhone 6 and 6 Plus were both designed with larger screens, which are popular among consumers in China and other countries in Asia

Apple will probably show on Monday that earnings jumped by more than 20% when it reports results for the second fiscal quarter, which ended in March. Photo: Bloomberg Premium
Apple will probably show on Monday that earnings jumped by more than 20% when it reports results for the second fiscal quarter, which ended in March. Photo: Bloomberg

San Francisco: Apple Inc.’s iPhone sales in China may have exceeded the US for the first time in the latest quarter, thanks to brisk demand during the country’s New Year celebrations.

Apple will probably show on Monday that earnings jumped by more than 20% when it reports results for the second fiscal quarter, which ended in March. While Apple doesn’t break out shipments by country, the company may have sold 18 million to 20 million iPhones in greater China during the period, while US deliveries were about 14 million to 15 million, according to Creative Strategies Llc.

The iPhone 6 and 6 Plus were both designed with larger screens, which are popular among consumers in China and other countries in Asia. That, along with last week’s rollout of the Apple Watch, underscore the importance of Chinese customers for chief executive officer Tim Cook’s efforts to keep up sales momentum.

“Did they capitalize on the availability of the iPhone 6 on China Mobile fully, and is that proving to be a real driver?" said Alex Gauna, an analyst at JMP Securities Llc, referring to China’s biggest wireless carrier.

Net income is projected to be $12.6 billion on revenue of $56 billion, according to the average of analysts’ estimates compiled by Bloomberg. A key question for investors will be any changes to Apple’s plan to return cash to shareholders. Cook has signaled that the company may increase share buybacks again after boosting repurchases to record levels last year.

Profit is predicted to be $2.16 a share, fuelled by a 33% rise in iPhone unit sales to 58.1 million, according to data compiled by Bloomberg. At the same time, the stronger dollar may have cut into revenue from iPhones, according to Bloomberg Intelligence data.

Other areas to watch when results are released Monday:

China sales

This could be the first quarter that Apple sells more iPhones in China than in the US, according to Ben Bajarin, an analyst at Creative Strategies Llc.

“Before, there was some strength in Asia and that was people buying for themselves, then you have the phenomenon you have in Chinese New Year, which is when people gift," Bajarin said. “Our big question is what happens in China for the next few quarters? Are they on par with the US. At some point in time, it feels like it is inevitable that every quarter iPhone in China will be bigger than the US."

Cook has said China is poised to overtake the US as Apple’s biggest market at some point, and he’s working to about double the number of stores in China by the middle of 2016. UBS Global Research estimates iPhone demand jumped in the quarter, based on Google search values and historical shipping data.

“Market research firm Kantar noted that iPhone sales reached an all-time high through February, recording a 28% share of urban China smartphone sales," Steven Milunovich, an analyst at UBS, wrote in an 9 April note to investors. “We suspect that 6 Plus interest is higher in China than elsewhere."

Some analysts had predicted Apple would sell more iPhones in China than in the US in the last three months of 2014. That didn’t happen, even though iPhone unit sales doubled in mainland China, chief financial officer Luca Maestri said in a January interview.

“We have a lot of momentum in China," Maestri said. “Chinese New Year is a very important part of the cycle in China, and so we hope to take advantage of that."

Next quarters

How iPhone sales perform in the current and next quarter — typically a lull before holiday sales ramp up again and new models are introduced — is a key question, according to Gene Munster, an analyst at Piper Jaffray Cos.

“The biggest investor questions are around what June and September iPhone units look like as we enter a typically slower period in the iPhone cycle ahead of the fall update," Munster wrote in a note to investors. If iPhone 6 and 6 Plus are “fundamentally different than prior cycles given the larger screen size, which we believe is true, then market share in June and September could be higher than historical norms."

Analysts are predicting revenue will climb 25% to $46.9 billion in the period ending in June. That would be the biggest third-quarter jump since 2011.

Strong iPhone results in the second quarter are likely to extend Apple’s global market share gains for the third straight quarter, according to an analysis by Bloomberg Intelligence.

Cash returns

Boosting the company’s capital return program could become an annual April event for Apple. The iPhone maker increased its capital return program to $100 billion in April 2013, including share buybacks and dividends. Then Apple raised it by $30 billion in April last year, adding a dividend increase and 7- for-1 stock split.

While Apple has been praised by activist shareholder Carl Icahn for returning cash, he’s been pushing for more. Cook has already signalled that the company may increase buybacks again after the company’s cash hoard grew by about $23 billion in the December quarter with the introduction of more expensive iPhones. Apple has also raised the equivalent of more than $40 billion in debt in less than two years to help finance dividends and buybacks, letting it return more money to investors without incurring US taxes on foreign profits.

iPad troubles

The one dark spot for Apple is shrinking tablet sales, which are on track for a fifth straight quarter of declines, by 17% to 13.6 million units, according to the average of analysts’ estimates compiled by Bloomberg.

A key question — although one that probably won’t be addressed this time — is Apple’s plans for a larger-screen iPad, which could appeal to business users and help breathe new life into sales. Production of a new 12.9-inch screen iPad has been delayed to around September because of difficulties in procuring display panels, people with knowledge of the matter have said.

IPads remain a key opportunity for Apple because the devices can be used for field work and as laptop replacements. Apple announced a partnership last year with International Business Machines Corp. (IBM) to create mobile software for businesses and for IBM to help sell iPads to corporate customers. Bloomberg

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Published: 27 Apr 2015, 08:58 AM IST
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