Apple (AAPL, Financial) shares dropped 4% to a four-month low after reports indicated an 18% decline in iPhone sales in China during the holiday season. This decline was compounded by downgrades from Loop Capital and Jefferies. The stock is now about 15% below its all-time high reached in late December, as concerns grow over weakening iPhone demand in China due to economic and competitive pressures.
Earlier this month, Apple offered up to $110 discounts on new iPhones in China to boost demand, a move consistent with its 2024 strategy of providing incentives to stimulate sales. However, the recent report did not confirm if these efforts were successful, raising concerns about the iPhone's diminishing appeal in China.
- During the December quarter, Huawei, a major competitor, saw a 15.5% year-over-year increase in sales, driven by its Nova 13 and Mate 70 series, defying a general 3.2% decline in China's smartphone sales.
- Globally, iPhone sales fell by around 5% during the December quarter, losing market share as consumers turned to Chinese OEMs. Even Samsung (SSNLF, Financial) faced stiff competition, losing market share to other Android brands.
- Apple's lack of AI features in China is a disadvantage. While AI tools are available in the U.S., they remain unavailable in China until Apple partners with a local company. Discussions with Baidu (BIDU, Financial) and Tencent Holdings (TCEHY, Financial) are ongoing, but no agreements have been reached.
- Samsung's similar challenges suggest that the absence of AI features might not be Apple's main issue. Design and technology may also be factors, as seen with Huawei's successful tri-fold smartphone and Xiaomi's (XIACF, Financial) advanced handset features.
Apple's struggles in China, facing both economic and competitive challenges, persist. Investors are pushing shares towards their 200-day moving average for the first time since May. While this decline may present a buying opportunity for long-term investors, short-term volatility is likely, especially if economic conditions weaken in other key markets like the U.S.
