- Apple is facing ongoing challenges in China due to declining sales, competition from domestic brands, and regulatory hurdles around AI.
Apple is still facing headwinds in China.
The company's overall sales in China declined 11.1% during to $18.51 billion during the last three months of 2024, the largest drop in the country since the first quarter of 2024.
Apple has faced intense competition from local smartphone manufacturers like Huawei and Xiaomi, which have eroded its market share in China over the last few years.
Apple has also had a hard time bringing its flagship AI features to devices in the country. Apple Intelligence is not yet available in China, due to Beijing's strict regulatory requirements surrounding AI technologies. The company is working with Chinese internet giant Baidu to bring generative AI services to its devices in the country, but the two are reportedly having issues adapting Baidu's AI models for China.
"China remained a growth headwind, with revenue declining for the sixth straight quarter," William Kerwin, a senior equity analyst at Morningstar, said in a note. "China is a key piece of our thesis for slowing long-term iPhone growth, with Apple losing share to revitalized domestic competitors."
The company’s iPhone sales declined slightly on a year-over-year basis during the quarter, the first quarter of fiscal 2025, but Apple's overall revenue rose 4%. Shares of the tech giant rose about 3% in extended trading, boosted by the company's positive forecast for the March quarter.
In a post on X, Wedbush's Dan Ives said Apple had "yet again proved the skeptics wrong as the upgrade cycle for iPhone 16 is ahead of iPhone 15 with March guidance much better than feared."
"China was a clear soft spot and not unexpected down 11% although roughly half of this decline was due to inventory issues which will be mostly cleared in the March quarter. We believe as Apple Intelligence rolls out in China we will see growth markedly rebound in this region to double digits YoY trajectory starting in the June quarter," he said in a separate note.
Analysts expected Apple's problems in China to persist before the tech giant reported earnings.
"China is now a significant headwind to iPhone revenue growth, and it used to be a pretty significant tailwind," Kerwin told Fortune before the earnings call. "It was an emerging growth market. Now there are more ramped-up competitive options from Huawei or Xiaomi...We still think they'll be able to grow in China, but it's no longer that high-growth outlet."
However, they also noted Apple was in a good position in its AI strategy, unlike some of its Big Tech peers that have been impacted by DeepSeek.
Apple has focused on integrating AI models into its hardware rather than investing in building its own and could benefit from the potential for cheaper AI models DeepSeek offers. In Thursday's earnings call, Apple CEO Tim Cook called DeepSeek a positive thing.
In response to an analyst question about the Chinese AI startup, Cook said: "I think innovation that drives efficiency is a good thing."
Representatives for Apple did not immediately respond to a request for comment from Fortune, made outside normal working hours.
