The Ups and Downs of Apple's China Business

Having gone from growth driver to problem child and back again before, Apple’s China business was one of the weaker spots in the company's better-than-expected or not-as-bad-as-feared March quarter. According to its latest earnings report, Apple's sales in the Greater China region, which includes mainland China, Taiwan and Hong Kong, declined 8 percent year-over-year in the first three months of 2024, which is actually an improvement compared to the 13-percent drop suffered in the preceding quarter.

During last week's earnings call, Apple CEO Tim Cook was repeatedly asked about his view on his company's performance and prospects in China, after a lot of reports that came out recently had pointed towards weakening demand for the company's most important product, the iPhone, in the Chinese market. Cook maintained an optimistic outlook, pointing out that iPhone sales actually increased year-over-year in mainland China and that the iPhone 15 and 15 Pro Max had been the best-selling smartphones in urban China during the first three months of the year, according to Kantar. He did concede that China has been and is the most competitive market in the world, so results there would always be subject to some fluctuations. In the long term, however, Cook said that he had a very positive view of China, not least because of the country's ever-growing middle class, which is synonymous with more potential iPhone users.

In fact, Apple climbed to the top of the Chinese smartphone market for the first time in 2023, capturing a record share of 17.3 percent of shipments in the world's largest smartphone market despite iPhone shipments declining 2.2 percent, according to IDC estimates. Total smartphone shipments in China declined 5 percent to 271 million units last year - the lowest in a decade - as weak consumer sentiment and a soft economic recovery weighed on the market.

As our chart illustrates, Apple's sales in Greater China have followed a cyclical pattern over the past decade, during which boom times have been followed by periods of lackluster growth.