How Apple Navigated the DeepSeek Sell-Off: Unpacking Ongoing Challenges in China

• Apple’s stock escaped a drop due to DeepSeek, but it faces another challenge in China.
• iPhone sales in China have declined again.
• The company reported an 11% decrease in sales last quarter, raising concerns about its future in a competitive market.

While Apple sidestepped the stock turmoil caused by China’s DeepSeek, it now faces another significant challenge in the country.

Last quarter, Apple revealed an 11% year-on-year drop in revenue from China, totaling $18.5 billion. This decline highlights the company’s ongoing struggles in what is arguably its most critical international market. Investors and analysts had hoped for better results.

In the previous financial year, Apple’s sales in Greater China fell by 7.7%, down from $72.5 billion, following a smaller dip of 2.2% the year before. These ongoing declines leave many observers questioning how Apple can turn things around.

During the recent earnings call, CEO Tim Cook directly addressed the steep drop in China, noting that “over half of the decline” was tied to changes in “channel inventory.” Additionally, he emphasized that China is “the most competitive market in the world.”

This tough competition comes from homegrown brands like Huawei and Xiaomi, which have been successfully attracting consumers with advanced, 5G-enabled smartphones that rival iPhones in functionality.

According to research from Counterpoint, Apple’s smartphone sales in China plunged by 18.2% during the last three months of 2024, while Huawei saw a boost with a 15.5% increase, thanks to its new Mate 70 smartphone series.

Logan Purk, an analyst at Edward Jones, noted that “sales in China were weak and will remain a point of debate among investors,” especially as Apple faces fierce competition in the growing 5G market.

Despite these challenges, analysts are hopeful for Apple’s future in China. They believe that the upcoming launch of Apple Intelligence, a set of generative AI features, could help the company regain traction. This rollout is anticipated for April and may prompt a significant upgrade cycle for iPhone users.

Dan Ives, an analyst at Wedbush, expressed optimism that Apple’s growth in China may rebound to “double-digits” year-on-year after the launch of Apple Intelligence. He pointed out that regions with access to this AI technology have shown stronger performance compared to those without it.

However, the success of Apple’s AI initiative in China is uncertain. Local competitors are also working hard to convince consumers that their technology is on par with leading international brands. For Apple, the challenge lies in convincing Chinese consumers that iPhones are ready for the AI-driven future.