- Apple avoided a hit to its share price from DeepSeek, but it has another China-made problem.
- iPhone sales in the country have fallen again.
- An 11% slide in sales last quarter is raising concerns about Apple amid tough competition in China.
DeepSeek may not have triggered a sell-off panic for Apple, but the iPhone maker has another China headache.
While Apple avoided the pummelling handed to its Silicon Valley peers this week by Chinese AI startup DeepSeek, the company had its own China-related problems on Thursday as it reported an 11% year-on-year drop in revenue in the country to $18.5 billion.
The slide in last quarter’s sales is a sign of deepening struggles for Apple in its most important international market — and is raising concerns among some investors and analysts who had forecast better results.
In its last financial year, Apple’s net sales in Greater China decreased 7.7% from $72.5 billion the previous year. The year before that, net sales decreased by 2.2%. Understanding if the decline can be stopped is now key for Apple watchers.
During Thursday’s earnings call, CEO Tim Cook took the 11% China decline head-on by explaining that “over half of the decline” was driven by changes in “channel inventory.”
He also had another explanation. “It’s the most competitive market in the world,” Cook said.
That competition has been a particular threat to Apple’s smartphone sales in China, where domestic companies such as Huawei and Xiaomi have been enticing consumers with 5G-enabled devices that now appear to rival the capabilities of iPhones.
Figures from research firm Counterpoint show that in the last three months of 2024, Apple’s smartphone sales fell 18.2%, while Huawei’s grew by 15.5% as it was boosted by the launch of its latest high-end smartphone series, the Mate 70.
In a research note after Thursday’s earnings, Logan Purk, senior analyst at Edward Jones, said that “sales in China were weak and will remain a point of debate among investors,” particularly as Apple contends with “fierce competition in China for 5G phones.”
That said, analysts also see an opportunity for Apple to counter the competition later this year once it rolls out one of its biggest bets to China: Apple Intelligence.
The tech giant’s generative AI features, unveiled in June last year, are yet to be rolled out in China and are seen as a key driver of a huge upgrade cycle in iPhones in the future.
Dan Ives, a Wedbush analyst, said in a note on Friday that his firm expects growth to “markedly rebound” in China to “double-digits” year-on-year starting in the June quarter, with the “anticipated April rollout” of the Apple Intelligence in the country.
His confidence was boosted by the fact that “markets where Apple Intelligence was available” saw clear year-on-year performance “outpace markets without this AI rollout.”
Still, Apple’s AI push in China remains untested, with domestic competitors in the country vying to show local consumers that their technology can match America’s best.
Apple will need to show Chinese consumers that iPhones are fit for the AI era.
