Apple released its latest results yesterday (Feb. 1), and investors were largely pleased. Globally the tech giant reported its best-ever quarterly revenue, despite a slight annual drop in the number of iPhones sold.
Yet there’s still a large question looming over the company: How will its latest handset, the iPhone X, perform in China? That will get answered this month, when consumers celebrate Chinese New Year. Traveling and gift-giving are big parts of the holiday, and consumers flock to malls and e-commerce sites beforehand.
This past quarter, Apple reported a 9% increase in revenue from a year ago in greater China (which includes Taiwan and Hong Kong). That marks the second consecutive quarter the company has reported positive revenue growth from the region, after a long slump.
The iPhone X has only been on sale since November in China, and the jury is still out as to whether it’s a hit. Data from Kantar Research suggests that the iPhone—including the iPhone X and other models—remained the top choice for consumers in China’s top-tier cities, which likely make up the bulk of the company’s Chinese customers. Yet analysts from research firms KGI Securities and Counterpoint Research stated that demand for the iPhone X in China has nevertheless missed expectations, due to competition from domestic rivals, longer upgrade cycles, and even the iPhone X’s notched screen design, for which some Chinese apps are not yet compatible. Apple suppliers have braced investors for worse-than-expected orders.
That means that the current quarter, and month, will be one to watch. In the past Apple has been a beneficiary of Chinese New Year gift-giving—in 2014, the iPhone was ranked as China’s “most-gifted” luxury item.
The iPhone X marks a critical test for Apple in China. If it’s a hit, it will signal that the brand has retained its cache among status-conscious Chinese consumers, even after the sales slump. If it’s a dud, it could mean that Chinese consumers are switching from iPhones to popular domestic Android brands, which are more affordable and often just as high-quality as the latest offerings from Apple. China’s overall smartphone market shrank for the first time in 2017, as consumers ceased trading in their existing phones for newer models, opting instead to keep their current handsets longer. That tough macro climate adds additional pressure on Apple.
Appropriately, on the same day it released its earnings, Apple also debuted an online advertisement for Chinese viewers. A seven-minute segment directed by Hong Kong filmmaker Peter Chan, it depicts a train operator who while working a busy shift during the annual Chinese New Year migration gets to see her son briefly during a stop, as holiday travelers swarm the platform.
Many such travelers, Apple hopes, will be bearing its latest iPhone as a gift.