Apple sees growth in China amid currency headwinds, contraction in US and Japan

Apple revenues exhibited regional growth in China over the first fiscal quarter of 2016, but currency headwinds clipped the company's wings, prompting the release of so-called "supplemental material" to explain what some might view as concerning trends.

Of the $75.9 billion in quarterly revenue Apple raked in over its first fiscal quarter, $29.3 billion came from the U.S., down 4 percent from the same time last year. More importantly, Greater China generated $18.4 billion, up 14 percent year over year, to become Apple's second-most lucrative market. Those numbers would have been higher if it wasn't for extremely volatile currency rates, CEO Tim Cook said.

For the first time, Apple prepared "supplemental material" with its earnings report, specifically pointing out the currency headwinds it's facing abroad. According to the company's calculations, $100 of non-U.S. dollar revenue in the fourth quarter of 2014 is worth only $85 today. In "constant currency," quarter one revenue would have been $5 billion higher, or an 8 percent year-over-year increase, Apple says.

The issue was the first topic Cook addressed during an earnings conference call on Tuesday. Cook noted the beginnings of softness in Greater China, specifically in Hong Kong, but said Apple plans to push forward in the region.

Applying constant currency arithmetic to regional revenues still shows the Americas down 1 percent with $30.2 billion, but offers a slight bump to China at $19 billion, up 17 percent year over year. The region that benefits the most, or suffered the most depending on how the data is perceived, was Europe. As reported, European revenue stood at $17.9 billion, up 4 percent from last year, but constant currency calculations bring that number up to $20.2 billion, a boost of 18 percent.

Finally, Japan revenue was $4.8 billion for the quarter, down 12 percent year over year. In constant currency terms, Japan brought in $5.3 billion to end the three-month period down only 4 percent.

5 Comments

jony0 12 Years · 380 comments

About 8 years ago

Well, first time to first comment, then here's another personal first to say : Döömed ! ( No /s flag but 2 Sarcästic Umlaüts. )

cnocbui 17 Years · 3612 comments

One thing you can be sure about when talking about exchange rates in terms of 'constant currency' is that it's going to change.

brucemc 14 Years · 1541 comments

Strange. None of the trolls wanted to post on this thread. I guess the data is too clean, and the point is positive, so they will go elsewhere. I would think revenue (constant currency) up 8%, with earnings higher, isn't the doom & gloom that everyone wants.

I expect the USD is likely to hit is peak this year, so 2016+ there will be some currency tailwinds. But again, why talk about that!

21yr_mac_user 16 Years · 85 comments

One thing I don't get. Nearly all of the iPhone's component costs are in Asian depreciated currencies. So if the US dollar gains big, the raw cost for Apple for the most part goes down a similar percentage (R&D is separately expensed in US dollars). It would seem then to maintain the current profit margin, the iPhone costs could be relatively constant in the rest of the world and actually go down in the US! Granted there are undoubtedly multi-year component contracts, but ultimately they parallel the exchange rate.

21yr_mac_user said:

One thing I don't get. Nearly all of the iPhone's component costs are in Asian depreciated currencies. So if the US dollar gains big, the raw cost for Apple for the most part goes down a similar percentage (R&D is separately expensed in US dollars). It would seem then to maintain the current profit margin, the iPhone costs could be relatively constant in the rest of the world and actually go down in the US! Granted there are undoubtedly multi-year component contracts, but ultimately they parallel the exchange rate.

Apple prices their products in USD. To maintain a global price book (at least at the retail level) for their products, as the USD goes up against a currency, they need to increase the price of their product in the local currency. This is imprecise, as exchange rates change all the time, and they might make price adjustments once or twice per year. If they didn't then some enterprising folks would get some arbitrage of purchasing the iPhone in the depreciated currency & shipping elsewhere (e.g. to US or others with a higher effective rice), effectively causing ASP's to fall.

If the USD rise causes them to be able to purchase components a little more cheaply, then it could have a positive impact on margins, but it doesn't affect the pricing strategy.

Generally, you can only easily lower prices - not raise them. Apple has been the master at keeping their prices up by continuing to enhance product & make it desirable. Thus the retail price of new iPhone has be $650 USD for many years. Once they do a price decrease, it will be effectively permanent. It is really hard to raise again and not lose a lot of customers. Thus why Apple is always trying to keep the price the same by adding features, design changes, including more s/w, etc.

There is no evidence that lowering the price of a new generation iPhone by $100 (from $650 to $550 say) will increase demand much - it will some. It is very easy to calculate the impact to ASP.

Share Your Thoughts on our Forums ->