Since reaching record highs on December 26, Apple (AAPL, Financial) shares have declined over 6%. The recent drop marks the worst single-day loss since October, driven by concerns over cooling demand in China, Apple's second-largest market, which accounts for about 15% of its annual sales.
Apple is offering discounts on iPhones in a four-day promotion starting tomorrow. The price cuts range from $55 to $110, depending on the iPhone 16 model and payment method. Such discounts are rare for Apple, especially so soon after a product launch.
Competition from China-based companies like Huawei and Xiaomi is influencing Apple's pricing strategy. Additionally, the economic challenges in China are significant. Smartphone shipments from non-China brands, including Apple, Samsung (SSNLF, Financial), and Google (GOOG, Financial), dropped 47% year-over-year in November, following a 44% decline in October. As the leading foreign OEM in China, Apple is heavily impacted by this trend. Meanwhile, China plans to subsidize smartphone purchases, expanding its trade-in program to include smartphones, smartwatches, and tablets.
- Apple's discounts are becoming more frequent. In January last year, Apple reduced iPhone prices by up to $70 amidst a 3% drop in overall smartphone sales in China. In May, Apple offered discounts exceeding $300 on select models to counter Huawei's new premium smartphones.
- Lower prices in 2024 may have boosted shipments in China. After a 37% sales drop in the first two months of 2024, Apple reported a 12% increase in March. In May, foreign smartphone shipments rose nearly 40% year-over-year, reflecting renewed demand for iPhones after price reductions.
- Apple's China revenue saw steady improvement in 2024, remaining flat year-over-year in Q4 (Sep). The company cited favorable foreign exchange conditions and a growing base of active devices. However, with Apple repeating its 2024 strategy, investors are concerned about stalled sales momentum in China. In contrast, Apple experienced constant currency sales growth in China in Q4 2023 before initiating price cuts.
In 2024, Apple's challenges in China were primarily due to competition, overshadowing economic concerns. This year, both factors are significant. Despite this, last year's discounts led to sales growth, and with China's expanded stimulus measures, similar price cuts might boost demand again in 2025.
