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Apple (AAPL) had record quarter in China thanks to iPhone upgrades

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Customers try out iPhone 12 smartphones at an Apple store on October 23, 2020 in Shanghai, China.

Wang Gang | Visual China Group | Getty Images

GUANGZHOU, China — Apple raked in its highest ever revenue in the greater China region in the December quarter as a record number of iPhone upgrades helped the U.S. tech giant in one of its most important markets.

Greater China revenue came in at $21.31 billion in the three months ended December 26, up 57% from last year. That was the highest revenue figure for a single quarter in greater China in Apple’s history. Apple also recorded its highest ever quarter for total revenue as it reported fiscal first-quarter earnings on Wednesday.

Apple CEO Tim Cook said the performance in China was “more than an iPhone story,” with other products contributing, but noted the company’s flagship smartphone was crucial.

“China also had a record number of upgraders during the quarter, the most we’ve ever seen in a quarter. I think probably some portion of this was that people probably delayed purchasing in the previous quarter as rumors started appearing about an iPhone,” Cook said on the earnings call.

“Keep in mind that 5G in China is, the network is well established. And the overwhelming majority of phones being sold are 5G phones. And so I think there was some level of anticipation for us delivering an iPhone with 5G.”

What was behind iPhone success?

The iPhone 12 range can connect to next-generation 5G mobile networks which are rolling out fast in China. Apple’s competitors already had 5G phones on the market.

The momentum seen in pre-orders appears to have stuck through the December quarter. In October and November, Apple shipped 11.2 million iPhones in China, according to data provided to CNBC by IDC. The final figures for December have not yet been calculated. IDC tracks so-called sell-in numbers which are iPhones Apple ships to distributors in China.

Separate figures from Shanghai-based CINNO Research estimate Apple actually sold 13.57 million iPhones in the October to December period, which would mark the highest single quarter of iPhone sales in China in history.

Apple shipped 90.1 million iPhones in the fourth quarter of 2020 globally, the largest number ever shipped by any vendor in the history of the smartphones in a single quarter, IDC said. Apple no longer provides iPhone unit sales data.

Will Wong, an analyst at IDC, said two key factors were behind Apple’s success in China — attractive iPhone 12 models and the weakness of Chinese smartphone giant Huawei.

The iPhone 12 and 12 Pro were the most-bought models due to good pricing and features such as screen size, according to Wong.

Meanwhile, Huawei has been hurt by a number of U.S. sanctions that have effectively cut it off from key components like cutting-edge chips, which has opened the door for Apple to take some of its market share.

In China, Huawei and Apple are seen as high-end smartphone players, according to Wong. Huawei has been slowing down supplies of its smartphones to distributors and retailers to make them last longer, Wong said. As a result, these distributors see reduced competition from Huawei.

“The channel partners see the competition to Apple is lesser now and consumers are also likely to shift from Huawei to Apple in China,” Wong said. That has helped Apple increase shipments of its iPhone in China.

Other products ‘above the company average’

Cook also said that Apple’s other products sold well in China.

“We could not have turned in a performance like we did with only iPhone,” the CEO said.

“iPad did extremely well, far beyond the Company average. Mac was about the Company average. Wearables, Home and Accessories was above the Company average. And so if you really look at it, we did really well across the board there.”

Services revenue, which includes money made from the App Store and other products like cloud storage, has become an important part of the Apple story for investors.

In the first few months of each year, Apple usually gets a boost from China because of increased spending by users around Lunar New Year. But in 2020, China went into lockdown in response to the coronavirus outbreak for much of February and March. Now, China generally has the virus under control and in many parts of the country, life is back to normal.

On the earnings call, one analyst asked if the “seasonal bump” may not happen in 2021 due to the prolonged amount of time people spent at home in the previous year.

Luca Maestri, chief financial officer at Apple, said that during the lockdown in China the “propensity for playing games continued for several weeks, more than a typical cycle.”

He said that Apple expects “to have a great (March) quarter in China” but warned the comparison “is going to be particularly challenging because of what happened a year ago.”


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IDFA iOS 14 change coming early spring

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A monorail train displaying Google signage moves past a billboard advertising Apple iPhone security during the 2019 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Monday, Jan. 7, 2019.

Bloomberg | Bloomberg | Getty Images

The long-awaited privacy update to Apple’s iPhone and iPad operating systems that could dramatically hurt mobile advertising is coming in “early spring,” Apple told CNBC on Wednesday.

To target mobile ads and measure how effective they are, app developers and other industry players currently often use Apple’s (IDFA), or a string of letters and numbers that’s different on every Apple device. But once this update rolls out, app makers will be forced to ask permission to access a user’s IDFA through a prompt. A significant portion of users are expected to say no, reducing the effectiveness of targeted ads.

Apple first announced the change last summer, giving advertisers and app makers ample time to prepare. But it’s become a major point of contention for ad-supported companies, who could lose revenue from the change.

Facebook in particular argues that the change will hurt the availability of free content on the open web and the ability of small business to place personalized ads. On Facebook’s Q4 2020 earnings call Wednesday, CEO Mark Zuckerberg slammed the change, calling Apple one of its biggest competitors and claiming that the change “threatens the personalized ads that millions of small businesses rely on to find and reach customers.” 

The timing of Apple’s change has been the subject of intense speculation in the mobile industry. Apple CEO Tim Cook is set to speak Thursday about data privacy at the Computers, Privacy and Data Protection conference in Brussels. On Thursday, the company is also releasing new marketing materials, including an update to its website and a report on data usage to illustrate how companies track user data across websites and apps.

Apple told CNBC that the next beta version of iOS will require app developers to ask permission to access the phone’s unique identifier.

The current version of iOS is 14.4, which was released earlier this week. There currently isn’t a public beta version beyond that available to developers. Apple declined to provide additional timing details. 

As companies prepare for the change, they’re letting partners and advertisers know how they plan to approach the change. Google on Wednesday said in a post that it will no longer use any information that falls under Apple’s AppTrackingTransparency framework for its iOS apps, and doesn’t plan to show the prompt on those apps.

Nominations are open for the 2021 CNBC Disruptor 50, a list of private start-ups using breakthrough technology to become the next generation of great public companies. Submit by Friday, Feb. 12, at 3 pm EST.


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Digital bank N26 is thinking of acquiring a competitor

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The logo of German online bank N26 displayed on a smartphone.

Thomas Trutschel | Photothek via Getty Images

LONDON — German online bank N26 is considering making an acquisition for the first time, after raising heaps of cash and trimming its losses despite the coronavirus pandemic.

The $3.5 billion financial technology firm said net losses at its core European business came in at 110 million euros ($133 million) in 2020, down from 165 million euros the previous year.

N26 didn’t disclose a revenue figure for last year, but said gross revenues doubled to nearly 100 million euros in 2019, from 43.6 million euros a year earlier. Its losses also more than doubled that year, though, from 73.2 million euros in 2018.

Founded in 2013 by longtime friends Maximilian Tayenthal and Valentin Stalf, N26 has attracted 7 million users globally and is one of many app-based challenger banks that gained popularity in recent years. Its rivals include Revolut in Europe and Chime in the U.S.

The firm has raised a total of $800 million to date, from investors including Chinese tech giant Tencent and billionaires Peter Thiel and Li Ka-shing. It has also started looking at deploying its war chest of funds to buy a fintech competitor.

“We have started to look — and we are still looking — opportunistically at some interesting targets,” Tayenthal, N26’s co-CEO, told CNBC in an interview. The company has historically relied on organic growth, he added.

“It could be players that are strong in certain areas; think about trading, think about KYC (know your customer). There could be other fintechs; challenger players in our space that have a good customer base.”

Tayenthal said there were no “super concrete” plans currently in place, but that it’s held discussions and is “looking at a good number of players.”

“I’ve had conversations and we still continue to look at interesting opportunities,” he said.

The Berlin-based group raised $100 million in fresh funds from existing investors early last year, just as the coronavirus pandemic rattled the global economy.

In the summer of 2020, N26 grappled with discontent from its own workers. Disgruntled staff formed their own works councils — worker organization bodies within a company — to address concerns with management.

Pushing for profitability

So-called neobanks have come under pressure to not only clean up their work culture but also switch their focus toward making money. Experts in the fintech industry have warned the space could see some consolidation as some players stumble amid the Covid-19 crisis.

A big driver of N26’s revenues has been its premium subscription-based accounts, for which it charges between 4.90 euros to 16.90 euros for a range of additional features.

But Tayenthal said the big focus for 2021 will be a “marketplace” model, where it includes products it can’t offer itself — such as trading and credit — while taking fees from third-party providers in the N26 app.

“In 2020, we actually brought down the burn significantly,” Tayenthal said. “It is true that, at one point in time, while we are still investing into growth, expansion and building up the team, we also want to get more in the direction of profitability.”

The N26 co-founder said his company plans to hire an additional 200 employees this year. It currently employs 1,500 staff globally. The firm is also planning to expand into Brazil, having recently obtained a banking license in the country.

“The environment in Brazil is actually very favorable,” Tayenthal said. “Everyone has a bank account in the markets we’re in already; in Brazil, this is obviously not true.”

Just under a third of adults in Brazil don’t have access to a bank account, according to the World Bank. But the market has seen increased digital banking adoption over the past few years. Nubank, a well-funded neobank based in Brazil, has a total of 25 million users across Latin America.

N26 recently hired a new chief financial officer, Jan Kempe to replace Tayenthal, who was himself elevated through the ranks to a newly created co-CEO role. Kempe is a former Zalando executive who led the German e-commerce firm’s 2014 initial public offering.

The move fueled speculation that N26 may soon go public. But Tayenthal said the firm has no immediate plans, despite strong recent debuts from the likes of U.S. consumer finance start-up Affirm and digital insurer Lemonade.


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