Apple’s Crippled China Sales

According to tech research firm Counterpoint, the sales of Apple Inc. (NASDAQ: AAPL | AAPL Price Prediction) iPhones in China fell 6% in the first eight weeks of the third quarter. This would not be worrisome, except that it breaks a string of better sales for Apple during this period. The China market dropped 2% in total over the same timeframe. Perhaps more concerning is that Apple now ranks sixth in market share (12%) in the world’s largest smartphone market, which is estimated to have a billion owners. That is more than three times the U.S. number.

Global smartphone giant Samsung was ahead of Apple, as were local companies Xiaomi, Oppo, Huawei, and Vivo. Each of these has some level of artificial intelligence (AI) in its operating system. Apple is not expected to have its own AI product until next year. Also, it is not that many years ago that local companies were less of a threat. However, Counterpoint does not think AI is the major reason people buy smartphones now, though the fact that Apple lags is still a significant worry.

Headwinds

The lingering problem for Apple is more what iPhone 17 sales will be like for the balance of the year. It is not unlike its U.S. problem. At some point, AI features become among the primary reasons, if not the primary one, why people upgrade their phones from one generation to another.

Apple’s “Greater China” sales are barely growing. They were up from $14.7 billion in the second quarter calendar quarter last year to $15.4 billion. American sales were $41.2 billion for the period. Based on how much larger China is compared to the Americas, Apple needs Chinese sales to be more substantial.

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China is not unlike the United States in other ways. The iPhone 17 will test whether a new smartphone with minor feature upgrades will get people to dump their iPhone 16s. A better camera, a slimmer case, and a more powerful chip may not be much incentive.

Apple also has to worry about getting caught in a tariff war. President Trump already threatened it with tariffs if it kept Chinese manufacturing at past levels. Apple countered with a promise of U.S.-based manufacturing. Yet, negotiations about trade between China and America are still on the table. No U.S. company with a large China footprint can feel safe until negotiations are finished.

Apple’s risks in China are growing.