Apple faces a challenge in China as demand for its products fades in�its second largest market

Record iPhone sales don't mask Apple profit slump

Technology giant Apple sold 31.2 million iPhones in the last quarter, but the record figure could not mask a fall in profits.

Sales of the smartphones were a record for the three month period to June, the firm said, eating 26 million in the same period last year but down on the 37.4 million sold between January and March this year, but the firm suffered a drop in sales of the iPad tablet and Mac computers.

The company's quarterly profit of £4.49bn was down from £5.73bn in the same three months last year and down from £6.27bn in the first quarter of this year.

Tim Cook, Apple's chief executive, said: "We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services.

"We are really excited about the upcoming releases of iOS 7 and OS X Mavericks (operating systems), and we are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014."

Apple sold 14.6 million iPads during the quarter, compared with 17 million in the same period last year. It sold 3.8 million Macs, it said, down from 4 million between April and June last year.

In April, Apple's profits slipped for the first time in a decade, a worry as the company is facing strong competition from Samsung, which is growing on the back of the popularity of its Galaxy S4 handset.

In April the Korean manufacturer posted a 41 per cent leap in earnings in the first quarter of this year – in the same week Apple reported its first annual slide in a decade.

And Apple faces a particular struggle in China, its second-largest market, as investors expect the stock rally may prove short-lived as demand for its products fades in China.

Analysts predict Apple will lose market share in the world's leading smartphone sector as the technology gap with cheaper local rivals narrows and as Samsung Electronics keeps up a steady stream of new models across all price ranges.

"There's some cannibalisation of Apple's market share from competitive mid-tier models that cost a lot less and perform as well, from vendors such as Xiaomi and Vivo," said Huang Leping, an analyst at Nomura in Hong Kong, referring to rival Chinese models.

Salespeople at several electronics shops in Hong Kong said South Korea's Samsung was a bigger hit with consumers as it offers more products. Some display counters didn't carry any Apple devices.

"Samsung products have enjoyed greater sales than Apple as many mainland (Chinese) tourists tend to buy Samsung due to a greater variety of models with a wider price range," said a saleswoman at a Hong Kong computer centre. "That's why we stock more Samsung products."

Revenue from all Apple products in Greater China, which includes Hong Kong and Taiwan, slumped 43 per cent from the previous quarter and was down 14 per cent from a year earlier – worrying in a region where smartphone penetration is still low.

Greater China accounted for 13 per cent of Apple's sales, in April-June – down from nearly 19 per cent in the previous quarter. Hong Kong was a particularly weak spot. "It's not totally clear exactly why that occurred," CEO Tim Cook said on a conference call with analysts.

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