Story Stocks^®

Apple (AAPL -4%) breaks to four-month lows today following a Bloomberg report that iPhone sales slid by 18% in China during the holiday season. Also piling on the selling pressure are two separate downgrades today, one at Loop Capital and another at Jefferies. Shares are now down around 15% from all-time highs reached in late December as market participants grow worried about deteriorating iPhone demand in China amid economic and competitive concerns.

Earlier this month, AAPL began offering discounts on new iPhones, marketing up to around $110 off certain models in China to spur demand. While the news was moderately troubling, given how the newest iPhone lineup was released just three months earlier, it followed a recent pattern from the tech giant. For instance, throughout 2024, AAPL announced various incentives and discounts on iPhones in China to stimulate sales. While today's report does not indicate whether AAPL's demand stimulation attempts worked as it centers on holiday sales, it adds to previous worries about the iPhone losing its appeal in China.

• During the DecQ, AAPL's top competitor, Huawei, reportedly posted a 15.5% lift in sales yr/yr, supported by its Nova 13 and Mate 70 series phones. Huawei's growth also bucked a broader trend in China, as smartphone sales edged 3.2% lower during the quarter.
• Competitive forces are not exclusive to China. Last week, Bloomberg noted that iPhone sales contracted by around 5% worldwide during DecQ and relinquished market share, reflecting a global trend surrounding handset users itching for newness as they turn toward Chinese OEMs. Even Samsung (SSNLF) found the competition formidable, giving up market share last year to alternative Android-powered brands.
• Not helping AAPL is its lack of AI features. The Apple Intelligence tools already rolled out in the U.S. and other countries are unavailable in China until AAPL finds a local partner to provide the AI infrastructure. Reports indicate that AAPL has been in discussions with several China tech giants, including Baidu (BIDU) and Tencent Holdings (TCEHY), but nothing has yet materialized.
• Still, Samsung's similar headwinds highlight that the iPhone's lack of AI features may not be the leading culprit. Instead, design, technology, and other hardware features might be holding AAPL back. For instance, Huawei manufactures a tri-fold smartphone, which saw over 6 mln in preorders late last year. Meanwhile, Xiaomi (XIACF) mentioned in November that the Pro version of its latest handset sold quicker than the standard version, suggesting a greater appetite for more advanced screen and camera technology since prices are relatively comparable to the iPhone 16 Pro Max.

AAPL's woes in China, battling on two fronts as it contends with economic and competitive headwinds, are not letting up. As a result, investors are sending shares toward their 200-day moving average (217.27) for the first time since May. While AAPL's correction does offer an attractive entry point for buy-and-hold investors, it is worth pointing out that near-term turbulence could persist, particularly if economic activity begins to soften in AAPL's other markets, including the U.S.