China and the iPhone are closely linked, as sales in that country are a key to Apple’s success.

China is going through an economic slump which shows up in sales of Apple’s most successful product, the iPhone.

Recently competitors in China have been growing sales faster than Apple.

Is a China sales slump for the iPhone part of a bigger trend for Apple?

Apple is one of the most valuable companies in the world, with a market cap of more than $2.6 trillion, second only to Microsoft at close to $3 trillion. But as recently as Dec 2023 Apple was trading at $199 and was the most valuable company in the world, at $3 trillion. Both companies are part of a group of seven stocks known as the Magnificent Seven – a cohort of stocks that was up 106 percent in 2023. Since the start of 2024 Tesla, Apple and Alphabet have slumped – leaving only Meta, Nvidia, Microsoft and Amazon as stocks that are keeping up with the market.

While the slump might be explained by extreme valuations coming down to earth, for Apple there are some obvious factors that have created doubt in the minds of many investors.

Apple’s iPhone sales generate most of its profits and about one-half of revenues. And China’s sales are slumping.

Huawei, Vivo and Honor have moved ahead of Apple in early 2024, according to Counterpoint Research. According to Counterpoint, Apple’s sales are down 24 percent this year so far while the total market in China shrank only 7 percent.

The leader this year is Vivo, while Huawei and Honor also beat Apple. Honor is a spinoff of Huawei. Oppo was formerly part of Vivo.

Most iPhones are assembled in China by Hon Hai Technology Group (Foxconn) which gets more than one-half of its revenue from Apple. Hon Hai employs more than 300,000 people in China at one plant making iPhones. Sales for Hon Hai were down 21 percent in January this year compared to a year ago.

The “patriotic” consumer in China is now choosing local brands over the U.S. brand, and that pressure is only going to increase as the tension between China and the U.S. continues.

Since China is the world’s second largest country and phone sales are saturated in the U.S. – the largest economy in the world – Apple faces some tough challenges. This is perhaps the most unstable time for the company since founder Steve Jobs died in 2011.

If the trend in China continues, can Apple make up those lost sales elsewhere? The most logical market is the U.S. but Apple is struggling to increase sales there.

Chinese brands such as Vivo and Huawei are Android-based and are making inroads in other key overseas markets for the iPhone such as India. Globally, the android operating system is used by 70 percent of all phones, while Apple’s IOS is 30 percent.

These new competitors are a serious threat to Apple globally.

Apple’s struggles have only just begun.

Hilliard MacBeth

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