By Eva Dou 

BEIJING -- The once-hot China market accounted for a large chunk of Apple Inc.'s first quarterly revenue decline in 13 years, highlighting the impact of the saturated Chinese smartphone market on global gadget makers.

Apple posted a 13% drop in revenue Tuesday, with falling sales in Greater China, which includes Hong Kong and Taiwan, responsible for 58% of that decline. The iPhone maker's global revenue fell $7.5 billion to $50.55 billion in the quarter ended March 26, compared with a year earlier. During the period, revenue from Greater China fell $4.3 billion to $12.49 billion, compared with 71% growth a year ago.

"The China market is really seeing flat growth," said Kitty Fok, China managing director for research firm International Data Corp.

Apple Chief Executive Tim Cook said on an investor call Tuesday that the China market was stronger than people thought. He said the majority of the weakness came from Hong Kong due to its currency appreciation.

Analysts said Hong Kong's retail weakness is a part of the overall slowdown in mainland China, since many of the city's shoppers are Chinese tourists. Hong Kong's iPhone sales have also slowed with the opening of more retail channels in mainland China, as more shoppers buy iPhones directly instead of purchasing them in Hong Kong or going through "gray market" agents who do so, the analysts said.

For years, double-digit growth in China's smartphone market padded the sales for major brands such as Apple, as they picked up millions of first-time phone buyers each quarter. China's smartphone market finally reached saturation last year, adding growth of only 2.5%, according to IDC, which estimates that growth will slow further to 2% this year.

For Apple, China's market slowdown was compounded by its iPhone cycle. The company releases a major new iPhone model every two years, with the next big upgrade expected this year. Some buyers are likely to hold out for the new iPhone 7 instead of getting an iPhone 6S now, said Nicole Peng, China research director at Canalys.

"The 6S was not a big upgrade to the 6," she said. "In the first quarter of 2015, Apple was the number one vendor in China thanks to the 6, but the 6S isn't able to help Apple achieve such success."

Analysts expect the launch of the iPhone 7 to return Apple to growth. CK Lu, a research analyst at Gartner Inc., said the average price for iPhones is expected to fall in China, with Apple having to offer lower cost models in the maturing, competitive market. That will put pressure on revenue growth even if unit sales remain constant, he said.

"We believe Apple still has its brand premium in China," he said. "But its sales mix is moving to lower average selling price."

India, however told a different story. The company reported a 56% increase in sales of iPhones there in the quarter compared with a year earlier, Mr. Cook said.

Apple started selling its cheapest-ever handset, the iPhone SE, in India earlier this year, in an attempt to reach more customers.

Mentioning India on an earnings call, Mr. Cook said: "We're placing extra emphasis in these areas, where it's clear there will be disproportionate growth versus the more developed areas."

India currently accounts for a small part of Apple's business. The company shipped 1.9 million iPhones to India in 2015, giving it about a 2% share of the Indian smartphone market, according to International Data Corp.

Mr. Cook said India's lack of an extensive LTE network, which offers fast data speeds, had held the company back.

"I sort of view India as where China was seven to 10 years ago from that point of view. I think there's a really great opportunity there," Mr. Cook said.

--Corinne Abrams and Sean McLain contributed to this article.

Write to Eva Dou at eva.dou@wsj.com

 

(END) Dow Jones Newswires

April 28, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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