Apple hopping off its high horse in the important (and long struggling) market of China appears to be paying early dividends.
“We're seeing — in the iPhone space, we saw a better year-over-year performance in the last weeks of the quarter as compared to the full quarter or November and December, which was sort of a — it appears to be the trough,” Apple CEO Tim Cook told Wall Street analysts Tuesday.
Cook cited three reasons for the long sought after stabilization in China.
First, Cook said Apple slashed the price on the iPhone in China to stimulate demand. Second, Cook credited the Chinese government’s stimulus efforts as helping to prop up demand for consumer goods. And lastly, changes to how Apple accepts iPhones for trade-ins and financing of new devices was well-received in the quarter.
Cook also gave a hat tip to improved trade rhetoric between the U.S. and China as lifting interest in iPhones.
“I think it's a set of all of these things, and we certainly feel a lot better than we did 90 days ago,” Cook added.
Sales in China were still down in Apple’s most recent quarter, however. Apple saw sales in greater China plunge 22% to $10.2 billion from the prior year. But, the percentage change was noticeably better than the 26% nosedive in the January ended quarter.
Bullish on China
That and Cook’s tone on the call at least gave the perception to Wall Street things in China are improving.
The business is vital for Apple, representing about 20% of its annual sales. Apple has had trouble in the country for some time as tech savvy Chinese consumers balked at the high price for the iPhone X. Further, the market is flooded with equally impressive smartphones — and often cheaper ones — from the likes of rivals Samsung and Huawei.
“Shares of Apple traded higher post-close as we think the company’s June quarter guide + commentary support the view that we are now seeing indications stabilizing/bottoming iPhone demand (particularly in China), coupled with continued solid double-digit growth in Apple’s services business (+16% y/y),” wrote Wells Fargo analyst Aaron Rakers in a note to clients.
Apple shares popped 6% in pre-market trading on Wednesday. In addition to a turn in China, Apple also jacked up its dividend by 5% and said it will repurchase $75 billion more in stock.
Ultimately, it’s unclear when Apple will begin jacking up its prices again in China. Perhaps when its first 5G iPhone becomes available (Cook dodged the question on timing of a 5G launch on the call). But for now, looks like cheaper iPhones in China — at the expense of maintaining Apple’s lucrative profit margin structure — has done the trick.
Finally, Tim.
Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow him on Twitter @BrianSozzi
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