A good chunk of first quarter iPhone revenues were out of China, a region Apple has become dependent upon. However, some investors are now concerned that China's turbulent economy and the competitive smartphone landscape present new challenges for the tech giant.
On Tuesday's call, Tim Cook reiterated his confidence in the long-term potential of that market and I'd agree that Apple's prospects of maintaining their market share are very high. Apple products are viewed as luxury items in China — on par with a Rolex watch or a Hermes Birkin bag. As the Chinese middle class continues to expand, Apple will have more potential customers willing to put their discretionary income toward technology. With that said, investors should keep in mind the foreign-exchange headwinds associated with doing business outside of the U.S. In the first quarter alone, the currency impact knocked 6.3 percentage points off of Apple's total revenue despite attempts to hedge.
Apple is reliant on producing hit products, so if the iPhone isn't cutting it, what other products could pick up the slack? The answer is none at the moment, with all other product metrics looking rather "meh." The iPad and Mac continue to take a beating with no sign of a recovery in the near future. It seems possible that the Apple Watch and Apple TV could be doing well, but since they are lumped into the "other" category with iPods and Beats, we're unable to break those numbers out. Somewhat encouraging is a pickup in media sales, with the company focusing on things like Apple Music to squeeze more money out of iPhone users. While these things are all well and good, they won't be enough to offset any weakness in iPhones.