Apple Inc. (AAPL) has a huge China sales problem — and the upcoming Apple earnings report is sure to show that in living color.
The last few months have been rough for AAPL stock, as the tech giant has slumped by over 12% from its July highs. That’s because investors are worried about Apple earnings given the signs of weakness in China sales.
AAPL stock has always been reliant on the iPhone upgrade cycle, and the debut of the iPhone 6S recently is a make-or-break event for Apple, like always. But the challenge this time isn’t just proof of growth, but also proof of growth in China.
That could be a big problem, since Apple reported 13 million iPhones moved in the first weekend of availability this year versus about 10 million last year.
Why is that a big deal? Well, because in Apple earnings from June, AAPL stock holders were impressed with a robust 112% growth rate for Greater China on the quarter … and we are likely well below that growth rate this time, even including the new iPhone.
Apple blog 9to5Mac did the math a few weeks back, noting that this is the first time an iPhone launch has included mainland China on the first weekend — and that the numbers show that either the iPhone 6S isn’t connecting, or that it’s connecting everywhere but China.
It’s hard to decide which one is worse for the next few weeks of AAPL stock performance, but failure in China seems to be by far the biggest anchor on Apple in the long term.
China’s Woes Are a Recurring Villain for AAPL Stock
This is not a new trend, either. In August, tech research firm Canalys noted Apple slipped in China market share, sending AAPL stock to No. 3 in this crucial market behind Xiaomi and Huawei, both of which use the Android operating system from Alphabet (GOOG, GOOGL). The latest figures show a similar makeup, with lesser-known and privately held Huawei jumping into the top spot over Xiaomi, but Apple trailing both.
That’s not just disturbing because Apple Inc. is No. 3 again, but also because the numbers reflect gadget popularity right around the crucial iPhone 6S launch for AAPL stock in the region.
Now, there may be a hope among some investors that this is the typical drawdown in Apple interest that occurs before a new product launch, since nobody wants to rush and buy the old model right before a new iPhone release.
But given that Apple has struggled to connect in China in the same way, it’s dangerous to read into this rollback in market share as a good thing.
We will see in cold, hard facts just how AAPL has fared when Apple earnings hit next week.
But you may want to brace for ugly China results.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
