- Tariffs would have made it impossible for the iPhone 11 line to compete in China amid declining sales.
- Nearly one-fifth of 2019 revenues for Apple came from China, making it a crucial market.
- No tariffs on the iPhone 11 line and the domination of AirPods in the hearables industry will boost Apple’s chance of a solid 2020.
2019 has been a good year for Apple (NASDAQ:AAPL) stock. Its 74% year-to-date gain pushed the firm’s market cap to over $1.2 trillion. And with iPhones avoiding a 15% price hike in China, AAPL is projected to have a better year in 2020.
iPhone 11s will be sold at normal prices in China
On Dec. 13, both the U.S. and China confirmed they had finalized a phase one trade deal.
The agreement narrowly prevented the scheduled imposition of additional tariffs on Dec. 15. Had the tariffs been placed into effect, it would have made the iPhone 11 Pro and Pro Max $150 more expensive in China.
Despite its high pricing and its overly unique design, the iPhone 11 has seen favorable public feedback.
Yet, in China, Apple has struggled to demonstrate a noticeable increase in sales. According to Credit Suisse, iPhone shipments to China declined by 35.4% year-over-year.
The lack of support for 5G by the iPhone 11 and its high pricing created a difficult environment for Apple’s flagship device to compete against local alternatives like Huawei and Lenovo.
By default, iPhones are sold with a 10-12% premium in China. An additional $150 tariff on the already marked up price would have made it impossible for Apple to compete in China’s market with the iPhone 11.
The phase one deal makes China open for business as far as Apple is concerned. Without it, Apple would have struggled to boost shipments of its new product line.
China is crucial for Apple
Maintaining a strong presence in China is still important for Apple. It has expanded some of its production to China in recent months, especially as orders for the AirPods Pro surged.
A source familiar with Apple’s relationship with China’s Luxshare recently noted:
Apple has increased monthly orders for the latest AirPods Pro from 1 million units to at least 2 million units thanks to healthy demand.
With potential tariffs on iPhone 11 Pro and Pro Max alleviated and the rapidly rising sales of its AirPods Pro product line, Apple has set itself up for a solid 2020. As Bloomberg reported earlier this week, Apple saw almost one-fifth of its 2019 annual sales come from China.
On the news that the U.S. and China reached a deal, the Apple stock surged by 1% on the day.
The Apple stock increased by 74% year-to-date. | Source: Yahoo Finance
Domination of the hearables industry
Throughout 2019, as sales of smartphones plateaued for all major manufacturers including Samsung, Huawei, and LG, skeptics questioned what the next source of sustainable revenue for Apple would be.
The International Data Corporation said in a report that the trio which includes the AirPod, Apple Watch, and Beats headphones are dominating the herables sector. These products have opened an entirely new market for the company scale into over the coming years.
Apple’s positioning in up-and-coming markets like streaming, hearables and wearables could be what replaces stagnant sales of smartphones in the long-term.
This article was edited by Sam Bourgi.
