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Technology

Apple bullish after iPhone 11 'extremely well-received' in China

Analysts warn 5G rivals pose threat in world's No. 1 smartphone market

Apple reported better-than-expected fourth-quarter results on Oct. 30, despite iPhone sales continuing to drop.   © Reuters

PALO ALTO, U.S. -- Apple is optimistic about its outlook in China after the iPhone 11 was "extremely well received" in the world's biggest smartphone market, where the U.S. company has struggled of late. However analysts warn that Apple will face intensifying competition there as rivals aggressively push 5G offerings.

The latest iPhone series logged $33.36 billion in revenue in the quarter ended September, down 9% on the year, the company announced in its earnings call on Wednesday. In greater China, which includes the mainland, Hong Kong and Taiwan, the sales dip was a smaller 2.4%, better than the 4.1% decline in the quarter ended June.

Apple's mainstay product sales have now dropped four quarters in a row.

"We've had a really good September [in China], and the lead of that is the reception of iPhone 11, 11 Pro and 11 Pro Max," Apple CEO Tim Cook said in the earnings call. "The products have been extremely well received there."

Cook also attributed the improving China performance to an easing of trade tensions.

"Things have been turning around on a macro basis. I think the trade tension is less and clearly looks positive right now with the comments we've been reading in the press," said Cook.

However, the company still faces strong headwinds in the region as competition intensifies in China.

The Nikkei Asian Review reported on Wednesday that Apple is mobilizing suppliers to produce its first-ever 5G iPhones in 2020. But the company’s biggest competitors in the region -- Huawei, Samsung and Xiaomi -- unveiled their own flagship 5G-compatible phones shortly after China announced it will roll out 5G communications in most major cities by year-end.

"Apple is more prepared than previous years to face strong headwinds in China," said Shanghai-based Canalys Research Analyst Louis Liu. "Its iPhone 11 models focused on camera improvements, which proved desirable to Chinese consumers. More importantly, a lower launch price of iPhone 11 and a more flexible channel margin structure for local distribution on the new devices, were critical market stimuli for Apple." Liu warned, however, that intensifying marketing and promotion for 5G in China "could steal its thunder."

Apple reported total revenues of $64.04 billion, beating Wall Street analysts' estimate of $63.01 billion and coming in at the high end of the guidance that the company provided last quarter. This was partly thanks to an 18% growth in its services business and a 54% sales increase in wearables.

"The highlight of this release and focus of investors, in our opinion, will be the robust December guidance for total revenue of between $85.5 billion and $89.5 billion versus the Street's $86.7 billion estimates," said Dan Ives, managing director at Wedbush Securities.

With the hope to get further boosts from the new iPhones and other product sales during the upcoming Thanksgiving and Christmas holiday shopping season, Apple provided strong guidance for the next quarter. "As we head into the holiday season, we have an enormous amount to look forward to," said Cook.

The better-than-expected fourth-quarter performance and an optimistic outlook helped push Apple shares 1.7% higher in after-hours trading.

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