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 The news on Thursday that Apple Inc's <AAPL.O> online book and film
services had gone dark in China came at a vulnerable moment for the
company. Apple executives have said that iPhone sales will fall for
the first time in the company's second quarter, and the results for
that quarter will be released on Tuesday. Investors are sensitive to
any signs of trouble in Greater China, the company's second-largest
market by revenue.
Apple executives have flagged the growing services business as a
potential source of revenue as sales of the company's flagship
devices level off, upping the stakes for success in China, said
analyst Bob O’Donnell of TECHnalysis Research.
"It raises questions in an area that we know long-term is going to
be very strategically important to Apple," he said.
The New York Times reported on Thursday that a state regulator
demanded Apple halt the service. The move came after Beijing
introduced regulations in March imposing strict curbs on online
publishing, particularly for foreign firms.
Still, the outage is only troubling if it persists, O’Donnell said.
Apple said in a statement on Thursday that it hopes to make the
services available to customers in China as soon as possible.
Apple has a strong track record of working with officials in China,
where it has launched a series of services including mobile payment
Apple Pay, but some analysts questioned whether the company may
receive a chillier reception in the future.
"Is this the beginning of more pressure on Apple by the Chinese
government?" asked analyst of Frank Gillett of research firm
Forrester. "It's a symbolic turn, and the question is to what extent
is it a harbinger."
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The company released its book and movie services in China only late
last year, leaving Chinese consumers little time to form a habit.
"People who are buying iPhones in China aren't buying them for
iTunes," said O'Donnell. "They are buying it for the status and the
cachet of owning an Apple product, and that is really more about the
hardware."
Chinese consumers' appetite for the phones themselves will be
critical to quarterly earnings. Apple is expected to post its
first-ever quarterly drop in iPhone sales, to about 50 million
units, reflecting a saturated global market.
Wall Street expects adjusted earnings per share to drop 14 percent
to $2.00 and revenue to drop 10 percent to $52.0 billion, according
to Thomson Reuters I/B/E/S.
(Reporting by Julia Love in San Francisco; Editing by Matthew Lewis)
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