iPhone sales in China drop in May after recent rebound — but Apple shows signs of resilience

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Pedestrians walk past signage for an Apple Inc. store at the Shanghai International Center (IFC) shopping mall in Shanghai, China, on Tuesday, Nov. 27, 2018.

Qilai Shen | Bloomberg | Getty Images

iPhone sales in China fell in May, showing signs of weakening after Apple saw an initial rebound when the country re-opened as the coronavirus outbreak eased.

But other areas of the business grew, including spending on the company's App Store, which could point to some resilience for the U.S. technology giant in one of its biggest markets.

Data collated from third-party sources by CNBC pointed to a mixed picture for Apple's China performance in May.

Apple sold 3.6 million iPhones in China in May, down from 3.9 million in April, according to Shanghai-based CINNO Research. That's a 7.7% fall versus April, but higher than the 3.05 million iPhone sold in May 2019. 

It contrasts with the 160% month-on-month rise in April, where Apple benefited from pent-up demand in China and saw a rebound as the country reopened its economy following a shutdown for several weeks earlier this year. 

Sales for the iPhone in China dropped a staggering 60% year-on-year in February this year. Apple was forced to close stores for a number of weeks as authorities sought to stem the spread of Covid-19. By mid-March, all the stores in China had reopened.

Meanwhile, so-called sell-in shipments of iPhones totaled just over 2 million in May, according to preliminary estimates by another research firm, IDC. That's around a 25% fall month-on-month, Will Wong, research manager at IDC, told CNBC. 

Sell-in refers to the number of iPhones Apple sold to its retail partners in China and can be used as a gauge for future demand.

Apple declined to comment on these figures. 

Overall smartphone shipments in China fell nearly 20% month-on-month in May, according to data from the China Academy of Information and Communications Technology (CAICT), a Chinese state-backed think tank.

Apple released the second generation iPhone SE in mid-April which went on sale in China later that month. It's the cheapest of the iPhone line and helped boost shipments in April as Apple got the device into the hands of retailers. But the company hasn't released a new device in May, which could partly explain the drop in shipments. But Wong warns it could also be a sign of weak demand.

"The main reason (for the drop) is because of the low consumer sentiment because of job concerns, because of the economic slowdown, that has lowered consumer sentiment," Wong told CNBC. 

He did note, however, that Apple was expanding its retailer network into smaller tier Chinese cities, despite the macro-economic headwinds.

Signs of resilience

On Alibaba-owned shopping site Tmall, revenue from Apple products totaled $136.9 million in May, according to WPIC, an e-commerce tech and marketing firm that helps foreign brands sell in China. That's a 7.2% month-on-month rise. 

Of course, Tmall is just one channel that Apple sells its products through. Others include Alibaba rival JD.com, as well as Apple's own stores and bricks-and-mortar retailers. 

But Apple is benefiting from signs of life in online retail sales in China

"Apple's growth in 2020 is staggering considering that these numbers include COVID-19 time," CEO of WPIC, Jacob Cooke, told CNBC. "Ultimately, it's clear that Apple is a resilient company, and we're keeping an eye on them to continue to grow over the back half of 2020."

Meanwhile, consumer spending on Apple's App Store in China totaled $1.71 billion in May, up around 11% from the $1.53 billion recorded in April, according to data from Sensor Tower. 

That money may not directly go to Apple's topline, but it shows an increasing number of users continue to spend money via Apple's platform. 

The App store is a key revenue driver for Apple's increasingly important services business, which raked in over $46 billion in sales in the last fiscal year. 

5G boost?

Part of the fall in shipments and sales for iPhones in China could have been due to consumers holding out for a 5G device. Apple is slated to release one this year, though some analysts are concerned there could be a delay. 

Since China began rolling out its 5G networks last year, the popularity of devices able to connect to that generation of mobile infrastructure has been growing. In fact, 46.3% of total mobile phone shipments in China in May were 5G devices, according to CAICT. 

Daniel Ives, analyst at Wedbush Securities, said in a recent note that he estimates around 350 million of Apple's 950 million iPhones in use worldwide are ready for an upgrade to the new iPhone, adding the U.S. technology giant could see a "5G super cycle." 

IDC's Wong, however, suggests a potentially high price for Apple's 5G iPhone could hold back its success.

"Some consumers might be waiting for 5G iPhones but two potential restraints could be pricing and another is lack of use cases," Wong told CNBC. 

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