Apple stumbles in the world's biggest smartphone market

Sales in Greater China slumped 26 percent

Last year, Apple was on a gravy train in China. Sales of the iPhone were booming, and the country looked poised to overtake the U.S. in its contribution to Apple’s business. Suddenly, things don't look so rosy.

Apple reported Tuesday that its first quarter revenue from Greater China declined 26 percent from the same period in 2015, a turnaround that contributed to Apple's first year-over-year revenue decline in more than a decade.

In a conference call with financial analysts, CEO Tim Cook blamed a variety of factors. Hong Kong was the biggest culprit, he said, because its currency is pegged to the strong U.S. dollar. Sales in mainland China were down only 11 percent.

Cook also noted that Apple's revenue in China soared 81 percent this time last year, making for a tough year-over-year comparison.

Still, it was a marked reversal of fortune, compounded by the fact that China's once red hot smartphone market has been cooling off as well.

Apple continues to invest in the region. The company added seven more retail stores in China during the quarter, and plans to open another five this quarter, bringing the total to about 40.

Still, there’s bad news embedded in another of Apple’s focus areas: its “services” revenue, which includes subscriptions to Apple Music and sales from the iTunes Store. As Apple starts to reach a point of having sold an iPhone to everyone who can afford one, it’s focused on squeezing more money out of people who already own its devices.

Unfortunately for Apple, the Chinese government just shut down iTunes Movies and the iBookstore inside China last week. Those digital storefronts aren’t the cornerstone of Apple’s services revenue plan, but the shutdown still hurts the company, especially given the size of the Chinese market.

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Blair Hanley Frank

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