Apple (NASDAQ:AAPL) is encountering significant challenges in its largest overseas market, China, as iPhone sales dropped by 18.2% during the final quarter of 2024. The decline marks a notable shift in the competitive dynamics of the Chinese smartphone market, where Apple has faced mounting pressure from local rivals. This trend underscores how external factors, including government regulations and competition, are impacting the tech giant’s performance in the region. The situation also sheds light on Apple’s delayed integration of artificial intelligence (AI) features in its devices sold in China, a move hindered by local restrictions. These developments reflect broader tensions between global brands and regional policies.
Why did Huawei reclaim the top spot?
Huawei overtook Apple to reclaim the number one position in China’s smartphone market, driven by the success of its Nova 13 and Mate 70 series. Counterpoint Research noted that Huawei achieved a 15.5% year-over-year sales growth, marking the first time it regained this position since facing U.S. sanctions. The extensive demand for mid-range and high-end Huawei products showcased the brand’s resilience and ability to navigate restrictions. In contrast, Apple’s iPhone slipped to third place, illustrating a competitive disadvantage in a fast-evolving market.
Is Apple’s AI strategy affecting its sales?
Apple’s delayed deployment of AI features in China could be affecting its competitive stance. While its Apple Intelligence suite debuted with the iPhone 16 globally, Apple’s inability to introduce these features in the Chinese market due to regulatory requirements has created a gap against competitors. Local laws mandating pre-approval for generative AI tools have forced Apple to explore partnerships with Chinese firms, a process that remains ongoing. This lag highlights the complexities of operating in a market with stringent technological and content policies.
In contrast to these newer developments, Apple’s iPhone sales in China had already shown signs of decline last year, with a 5% decrease amid intensifying competition. Huawei’s resurgence and the growing consumer interest in alternative brands underline the challenges Apple has faced. Additionally, the rising prominence of AI in smartphones has reshaped buyer expectations, creating a new battleground where Apple appears to be catching up.
Separately, Apple’s struggles are not limited to China. In Indonesia, stringent regulations requiring 40% local content in devices led to a ban on iPhone sales. Despite offering a $1 billion investment proposal, the company could not meet the regulatory demands, further highlighting its difficulties in navigating local policies in emerging markets.
The ongoing issues raise questions about Apple’s broader market strategy. Experts suggest that while Apple focuses on long-term refinement and privacy in its AI offerings, the company might have underestimated the immediate demand for advanced AI capabilities in certain regions. Steven Athwal, CEO of The Big Phone Store, remarked,
“Apple may be late to the AI surge compared to Google (NASDAQ:GOOGL) and Amazon, which have been adding AI to products for years, but Apple has always been about timing and refinement.”
This perspective underscores the brand’s focus on quality over speed, though it remains unclear if this approach will resonate in markets like China.
Apple’s ability to adapt to specific regulatory and competitive environments remains critical. In China, maintaining relevance will likely require more than product refinement—it will involve addressing geopolitical and technological barriers strategically. The company’s current trajectory highlights the importance of aligning innovation with the regional landscape to sustain growth. While Apple has historically managed to overcome challenges, its future in key markets like China may depend on how effectively it balances compliance, innovation, and competition.
