On the Questionable Questioning of iPhone Demand in China

The Daily Observation Deck Feature

Considering iPhone price drops in China, Evercore is still bullish on the App Store, and updates for Apple’s media players.

iPhone 14 Pro Prices Drop in China 

The headline from 9to5Mac said, “iPhone 14 discounts suggest lower than expected demand in China.”  Another headline, this one from MacRumors, said “Apple Cuts iPhone 14 Pro Prices in China by Up to $118 in Rare Sales Push.” The headline from South China Morning Post said, “Apple cuts iPhone 14 prices in China by up to US$125, making rare sales push following quarterly revenue drop.”

I spent a good bit of Monday angry about all three, though you can talk me down off misgivings around the 9to5Mac headline. I’d feel better about it if it said, “iPhone 14 discounts may suggest lower than expected demand in China.” Because “suggest” in this case is subjective. Such discounts may suggest lower than expected demand. They may also suggest other things, which we’ll get to.

First, mad props to Reuters for its headline on the same story. The Reuters headline says, “Retailers offering discounts on high-end iPhones in China.” And we have a winner. While SCMP’s headline said “Apple cuts iPhone 14 prices,” the story itself said “Apple’s online stores on JD.com” had cut prices, and “Bricks-and-mortar resellers have also offered price cuts,” and Apple Authorized resellers Suning and Sundan had cut prices. 

We Aren’t Sure It Really Mean What You Say It Means

In short, lots of outlets in China are offering lower prices on Apple’s most popular phones. To 9to5Mac, this suggests “lower than expected demand in China.” And that may be. Let’s do another one. 

China went from lockdowns to prevent the spread of COVID to massive COVID infections over the course of about a month-and-a-half. Things seem to be looking better. A piece from Stars and Stripes says: 

The Chinese Center for Disease Control and Prevention said on Saturday that 3,278 deaths were linked to COVID at hospitals across the country between Jan. 27 and Feb. 2. That compared to over 6,300 in previous week. In the latest seven-day tally, 131 died from respiratory failure and 3,147 from other underlying diseases but were infected with COVID, the center said.

A piece from the BBC showed a similarly positive trend, which is great — assuming the numbers are sound (which is not a rock solid assumption). Either way, COVID was running rampant in China headed into the Lunar New Year celebration. That might have caused some shoppers to be a bit cautious, which might have led to a downtick in sales for the likes of JD.com, Suning, and Sundan, which might have led them to trim the price on one of the hottest products going as a loss leader. Get people through the doors (real or virtual) so you can sell and upsell on accessories and repair programs. For example, according to SCMP

…JD.com, China’s second largest e-commerce platform, showed a markdown of 800 yuan for the iPhone 14 Pro and Pro Max models on Monday, with an additional 50 yuan off if the buyer became a member of the online store.

In other words, authorized resellers may be taking a bit of a bath on iPhone 14 Pro to get cautious shoppers to go ahead and shop in the hopes of getting those shoppers to spend money on other products and services on which those resellers make their real money. 

Anyway, that’s one thing the price cuts might suggest. Especially since, despite what the headlines from MacRumors and South China Morning Post say, Apple did not cut the price for iPhone 14. At least it didn’t for the channels over which it has total control. As South China Morning Post itself points out, “the prices on Apple’s official website and offline stores in China remained unchanged as of noon Monday…” 

Evercore Bullish on Apple Services in 2023

Things are looking up a bit for the App Store — that’s the take from Evercore analyst Amit Daryanani. Apple 3.0 ran part of a note he wrote. Though App Store revenue actually slid a bit in January, the analyst says he and his expect “App Store growth to accelerate in the Mar-qtr.” According to the analyst:

…China continued to improve with growth improving to +3% vs. flat last month. Improvements in China and a more moderate FX environment should help drive mid-single digits App Store growth in the Mar-qtr. 

“Japan was the largest drag on growth,” according to Daryanani, “with revenue down 19%,” same as December. The US, meanwhile, saw App Store growth of 6%, again — same as December.

Games were weak, which is not a shock. Not only did Apple CFO Luca Maestri say on last week’s earning call that those were weak last quarter, he said they would continue to be this quarter as well. Daryanani says “the entertainment category is picking up a lot of the slack with 22% growth…” 

Pointing out that the performance of Apple’s Services segment was one of the most positive positives on last week’s call, Daryanani and crew are calling for “mid-single digit Services growth in the Mar-qtr.” Bottom line — he and his say the App Store is getting back on track, and that they “remain confident” in a strong 2023 for Apple’s Services segment.

Daryanani has an “Outperform” rating on Apple shares. His price target on the shares is $190.

Apple Releases v16.3.1 of tvOS and HomePod Software

Smallish software updates for two of Apple’s smallest devices. A piece from Cult of Mac says Apple has released tvOS 16.3.1 and version 16.3.1 of the HomePod software. Neither does anything worth writing about, as fas as Apple’s concerned. The release notes for both say they include “general performance and stability improvements.”

LG Adds Apple TV, Apple Music, AirPlay, and HomeKit to webOS Hub

More Apple TV on more TVs. BGR says LG Electronics has slipped apps for Apple TV and Apple Music, as well as functionality for AirPlay and HomeKit into its webOS Hub “in over 100 countries and regions.” 

Apple CEO Pledges Donations in Wake of Turkey/Syria Earthquake

You’ve no doubt heard about the devastating earthquakes and aftershocks that hit Turkey and Syria on Monday. A piece from The Guardian Monday evening said the death toll at that point was over 4,300, though the UN says that number could rise to more than 20,000. 

Apple CEO Tim Cook took to Twitter to comment on the tragedy and Apple’s plans for support. In the Twitter post Cook said:

Sending our thoughts and condolences to the people of Turkey, Syria, and anyone affected by the devastating earthquakes. Apple will be donating to relief and recovery efforts.

Today on The Mac Observer’s Daily Observations Podcast

Headlines from A-to-Z said Apple cut the price of iPhone in China. TMO Managing Editor Jeff Butts and I talk about why that’s maybe not the case, and what the lower prices might mean. Plus — A tale of lost luggage three months in the making, and how one charity shop nearly ended up with an AirTag. That’s all today on the Daily Observations Podcast from The Mac Observer.

One thought on “On the Questionable Questioning of iPhone Demand in China

  • Ken:

    Anticipate continued strong Services growth on Apple’s platform, particularly as AI assumes an increasingly prominent role in new and emerging product lines (see comment on Jeff’s ‘Apple’s Internal AI…piece for rationale and explanation).

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