4 key reasons Apple’s China problem is going away

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Activist shareholders push Apple on why it booted Hong Kong protest app
Activist shareholders push Apple on why it booted Hong Kong protest app
Photo: Fredrik Rubensson/Flickr CC

Apple’s business in China is finally turning around, according to execs who say Cupertino’s troubles in the country might be a thing of the past.

“We feel positive about our trajectory,” Apple CEO Tim Cook said during Tuesday’s earnings call, noting that the company’s “year-over-year revenue performance in Greater China improved relative to the December quarter.”

Then Cook laid out four reasons why Apple’s “China problem” is going away.

The factors easing Apple’s ‘China problem’

Cook’s optimism about the future in China is great news for Apple. In recent months, China’s stalling growth has meant one thing for Apple: bad news.

The country’s faltering economy took some serious wind out of Cupertino’s sails, as iPhone sales took a hit there and elsewhere. But Cook said four key actions taken by Apple and the Chinese government produced a very positive effect. They could be key to ending Apple’s China problem once and for all.

1) iPhone price cuts helped

After last quarter’s dismal results in China, Apple took the rare step of cutting prices on iPhones, Macs and iPads in the country. At the time, Cook admitted the price cuts were a bit of an experiment.

Now, he says the experiment seems to have worked.

“We made some price adjustments, essentially backing out the weaker currency effect and then some,” Cook said during the call.

Apple’s notoriously high hardware prices made it hard for iPhone to compete with cheap Android phones. However, Cook cited Apple’s price cuts as the first factor in turning things around in China.

2) Apple’s trade-in program boosted sales

Apple’s second smart move — pushing trade-in and financing programs in an attempt to woo customers — also boosted sales in China.

“Our trade-in and financing programs that we’ve implemented in our retail stores have been very well received” in China, Cook said. He added that he’s “happy with the results to date” in this key market.

3) Chinese government cut taxes

Apple’s China turnaround didn’t come solely at Cupertino’s hands, though. Steps taken by the Chinese government to boost the nation’s economy also played a part in Apple’s turnaround there.

“There’s stimulus programs that the government has executed including — and this happened in early April — VAT being reduced from 16 to 13 percent,” Cook said. “So they’ve been aggressive in the stimulus side.”

4) U.S.-China trade relations on the mend

Despite persistent handwringing about President Donald Trump’s “trade war” with China, it looks like things are getting more amicable. Cook said “an improved trade dialogue between the U.S. and China” makes people more willing to pony up for a new iPhone or iPad.

“From our point of view this has affected consumer confidence on the ground there in a positive way,” Cook said.

Apple still faces problems in China

Things aren’t all rosy for Apple in China, though. Dealing with the country raises complex issues that continue to cause problems for Cupertino. Recently, the company faced criticism for removing songs critical of the Chinese Communist Party from Apple Music.

Cook cited slow regulatory approval of gaming apps in the country as a reason for poor App Store results there. However, he said even that is looking up, before busting out the kind of generic optimism he’s known for.

“We believe strongly in our long-term opportunity in China thanks to our robust ecosystem, our talented developer community, and the country’s growing population of tech-savvy consumers who value the very best products and services,” Cook said in his prepared remarks.

When responding to a question later during the call, Cook sounded more off-the-cuff discussing the four factors fueling Apple’s Chinese turnaround.

“I think it’s a set of all of these things,” Cook said, “and we certainly feel a lot better than we did 90 days ago.”

Transcript: This is Tim: Transcript of Apple’s Q2 2019 call with analysts by Six Colors