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Since reaching record highs on December 26, shares of Apple (AAPL) have suffered a string of losses, pulling back by over 6%. Yesterday's decline was the iPhone maker's single worst day since October. The mounting concern stems partly from cooling demand in the company's second-largest region, China, comprising an estimated 15% of annual sales.

Yesterday, Reuters reported that AAPL was offering discounts on iPhones, running a four-day promotion starting tomorrow. The discounts are relatively minor, ranging from around $55-110 depending on the iPhone 16 model and payment method. Nevertheless, AAPL seldom slashes prices on its latest iPhone lineup, particularly after just three months since launch.

While competition is a factor in AAPL's discounting as prominent China-based players, like Huawei and Xiaomi, offer appealing alternatives to the iPhone, the economic situation in China is producing meaningful headwinds. Today, Reuters noted that smartphone shipments to China from non-China brands, including AAPL, Samsung (SSNLF), and Google (GOOG), declined by 47% yr/yr in November, extending the roughly 44% drop in October. With AAPL as the dominant foreign OEM in China, much of the decline could be attributed to the company. Meanwhile, Bloomberg reported that China is looking to subsidize purchases of smartphones, extending its existing trade-in program that covers appliances and vehicles to smartphones, smartwatches, and tablets.

• AAPL's recent discounts, albeit rare, are becoming more common. In January last year, the NY Times reported that AAPL was trimming iPhone prices by up to around $70. At the time, while the Chinese economy was shaking, coming off a 3% drop in overall smartphone sales in 2023, competition was the overarching concern. This development intensified in May when AAPL ran discounts of up to over $300 on select iPhone models to better lure customers who were being pulled away by Huawei's newest premium smartphones released in the month prior.
• The lowered prices in 2024 may have eventually spurred higher shipments in China. After enduring a 37% contraction in sales in China during the first two months of 2024, reports noted that AAPL posted a 12% jump in March. Furthermore, in May, foreign smartphone shipments surged by nearly 40% yr/yr, largely reflecting reenergized demand for the iPhone following significant price cuts.
• AAPL's China revenue improved steadily throughout 2024, recently coming in relatively flat yr/yr in Q4 (Sep). AAPL mentioned that improving FX headwinds provided decent help. The company's installed base of active devices, which reached an all-time high, also played a role. However, with AAPL now turning to a similar playbook it deployed in 2024, investors are worried that the company's sales momentum in China has hit a wall. For comparison, AAPL saw constant currency sales growth in China in 4Q23, a few months before enacting price cuts.

Surrounding AAPL's China-related woes in 2024, a slowing economy took a backseat to intensifying competition. This year, it looks like both headwinds will be front and center. However, discounts did spur sales growth for AAPL last year. With China expanding its stimulus measures, perhaps price cuts will be sufficient to spur demand again in 2025.