Apple Inc. experienced a significant decline in its China sales, with an 11.1% decrease on an annual basis during the December quarter. The tech giant attributes over half of this decline to inventory issues, which impacted sales channels such as wireless carriers and retailers. Despite this setback, Apple's iPhone 16, bolstered by AI features, has seen strong performance in the U.S. and other markets. However, the absence of these AI features in China is affecting sales. The Chinese government's recent subsidy policies and a nationwide program launched on January 20 aim to stimulate consumption, potentially alleviating some of Apple's challenges.
Apple CEO Tim Cook described China as "the most competitive market in the world," highlighting the intense environment in which the company operates. More than half of the sales decline was due to reduced channel inventory, as Cook explained, "My point was that our channel inventory reduced from the beginning of the quarter to the end of the quarter, and that was over half of the reduction in the reported results." The company faced unexpected demand towards the end of the quarter, which contributed further to inventory challenges.
"Part of the reason for that is that our sales were a bit higher than we forecasted them to be, toward the end of the quarter," Cook noted.
Apple's struggle to maintain its position in China is further complicated by regulatory challenges. The company's suite of artificial intelligence features, available only in English, is not yet accessible to Chinese consumers. A simplified Chinese version is expected to launch in April. Until then, Apple's market share lags behind local competitors Vivo and Huawei.
"During the December quarter, we saw that in markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those markets where we had not rolled out Apple intelligence," said Cook.
To offer their AI capabilities in China, Apple is exploring partnerships with locally licensed companies. This strategic move aims to ensure compliance with Chinese regulations and facilitate integration.
"Until we get through the regulatory process, nothing is certain, and we're going through it now," Cook stated. He further added, "There are a number of Chinese companies that do have licenses to operate locally. What we have to do is choose one and work with them on the integration, just like OpenAI."
The Chinese government's subsidy program, capped at 500 yuan per product, excludes high-end models like Apple's Pro phones but includes other products such as smartphones, tablets, PCs, and smartwatches. Introduced to boost domestic demand, this program may help reduce costs for consumers purchasing Apple products.
Smartphones were recently added to the list of eligible products under the subsidy program. This move is crucial as Apple endeavors to make its offerings more accessible in China. The company's market share remains third in China as of 2024, according to IDC estimates.