Apple reported an 11.1% year-over-year decline in China sales for the December quarter, marking its worst growth rate since the same period last year and continuing a six-quarter streak of declines. The drop highlights the growing competition from local brands such as Huawei and Xiaomi, as well as regulatory and operational challenges in one of Apple’s largest markets.
CEO Tim Cook addressed the sales downturn, pointing to multiple factors affecting demand. A key issue was the absence of Apple Intelligence, the company’s AI-powered features, in China. Cook noted that iPhone 16 sales performed better in markets where Apple Intelligence was available, such as the U.S., but the software has yet to launch in China. A simplified Chinese version is expected in April, though regulatory approval remains uncertain. Apple is actively seeking a licensed local AI partner, similar to its collaboration with OpenAI in the U.S., to navigate China’s strict AI regulations.
Another significant factor contributing to the revenue drop was a miscalculation in demand, leading to inventory imbalances. Cook explained that Apple ended the quarter with lower-than-expected inventory levels in China due to higher-than-forecasted sales towards the end of the quarter. He attributed over half of the revenue decline to this channel inventory issue, referring to reduced stock at carriers and retail partners.
Apple is also monitoring the impact of a new national subsidy program introduced by the Chinese government to stimulate domestic consumption. The initiative, which launched on January 20, includes smartphones, tablets, PCs, and smartwatches. However, the subsidy is capped at 500 yuan per product, and premium iPhones priced above 6,000 yuan, including Apple’s Pro models, are not eligible.
Despite these setbacks, Cook remains optimistic about Apple’s long-term prospects in China. The company is expected to provide further updates on market conditions and its AI rollout in future earnings calls. As Apple navigates regulatory hurdles, inventory challenges, and local competition, its strategic focus on AI and partnerships will play a critical role in regaining momentum in the region.
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