Apple iPhone Sales in China Fall 19%, Shifts Focus to India

Key Takeaway

• Apple's iPhone sales in China plummeted by 19% in the March quarter, its worst since 2020, dropping to third place behind Huawei.
• In response to declining sales, Apple is diversifying by planning to assemble 25% of iPhones in India, aiming for growth in new markets.
• Despite a 14% drop in shares this year amid skepticism, Bank of America remains optimistic about Apple's future due to its defensive cash flows.

iPhone Sales Decline in China

Apple Inc. experienced a significant downturn in its iPhone sales in China during the March quarter, with a 19% decline marking its worst performance in the region since the onset of Covid around 2020. This downturn resulted in Apple falling to third place in China's competitive smartphone market, closely aligning with Huawei Technologies Co. According to Counterpoint Research, while the overall market saw a modest expansion of about 1.5%, local brands such as Honor Device Co. and Xiaomi Corp. led the growth. This period typically sees a surge in consumption due to the Lunar New Year celebrations, making the decline more notable. Huawei's nearly 70% growth in the same timeframe underscores its resurgence, particularly in the premium segment where Apple previously held dominance.

Strategic Shifts Amidst Global Challenges

In response to declining sales and increased competition, Apple is shifting its focus towards new markets and diversifying its product and manufacturing strategies. The company is looking towards India as a pivotal market for growth, planning to assemble 25% of its iPhones there. This move is part of a broader strategy to mitigate risks associated with over-reliance on the Chinese market, which has been fraught with regulatory challenges and geopolitical tensions. Apple's efforts to tap into India's growing middle class and smartphone adoption reflect a long-term investment strategy aimed at replicating its premium brand success in new regions.

Market Sentiment and Analyst Perspectives

Ahead of its fiscal second-quarter earnings report, Apple faces skepticism from investors and analysts, with its shares having fallen 14% this year. This decline in share value is attributed to concerns over valuation, competition, and Apple's position in the artificial intelligence race. Analysts from Morgan Stanley and Bank of America offer contrasting views on Apple's prospects, with Morgan Stanley adjusting its price target downwards due to anticipated disappointing guidance for the fiscal third quarter. Conversely, Bank of America remains optimistic, citing Apple's defensive cash flows and rich catalyst path as reasons for naming it a top pick for 2024. The competitive landscape, particularly in China, and regulatory pressures are highlighted as significant challenges for Apple.

Street Views

• Ivan Lam, Counterpoint (Bearish on Apple in China):

  "Apple’s sales were subdued during the quarter as Huawei’s comeback has directly impacted Apple in the premium segment. Besides, the replacement demand for Apple has been slightly subdued compared to previous years."