Apple should be having a good quarter. The iPhone manufacturer returned to quarterly sales growth for the three months ending Dec. 30, after four straight quarters of declines. Sales of the iPhone rose 6% to $69.7 billion, and the company’s services business hit a record high of $23.1 billion. Apple’s overall revenue grew to $119.6 billion, beating analyst expectations.
Apple, in fact, did well everywhere—with one major exception. Sales in Greater China, which includes mainland China, Hong Kong and Taiwan, declined by 13% year-on-year, a larger decline that what analysts predicted. China is one of Apple’s most important markets, after the U.S. and Europe.
Apple shares dropped 2.9% in extended trading after the iPhone maker released its quarterly results, wiping $84 billion of the company’s market valuation. Apple’s decline comes amid a good day for the overall U.S. tech sector, after bumper earnings from Meta and Amazon lifted their shares by 15.2% and 7.1% in after-hours trading respectively.
Investors may be worried about more than just weak China sales. Apple chief financial officer Luca Maestri warned that year-on-year comparisons for the current quarter will be distorted by a post-COVID surge in demand in early 2023. Maestri suggested that this quarter’s sales will be roughly equal to sales a year ago—after removing approximately $5 billion worth of post-COVID revenge spending.
Apple can at least take comfort in its sales elsewhere in Asia. The company’s Japan revenue hit $10.16 billion, ahead of analyst expectations, and Cook claimed that iPhone sales in South Korea hit a record high. The company also had record December-quarter revenue from emerging markets including India and Indonesia.
“The positive emerging market offset is a welcome news, but China remains a slight concern,” Counterpoint Research’s senior analyst Ivan Lam wrote in a research note. “We’ll see whether Apple will get aggressive on pricing over the critical weeks before Chinese New Year.”
Apple has tried to boost sales of the iPhone 15 series in China, including offering a rare discount ahead of the Lunar New Year holiday.
The firm’s CEO Tim Cook called China “the most competitive smartphone market in the world” in an interview with Reuters. The company is the top-selling smartphone manufacturer in mainland China, according to research from IDC and Counterpoint Research, yet it faces the dual whammy of cooling consumer spending and more affordable offerings from local brands.
Apple’s biggest Chinese competitor is Huawei, which released a new line of smartphones powered by advanced chips made in China. The release of Huawei’s Mate 60 Pro sparked a wave of nationalistic pride in the country, as state media trumpeted the Chinese company’s ability to withstand U.S. sanctions. Huawei had the biggest jump in market share for the final quarter of 2023, according to data from Counterpoint.
Fellow Chinese brands Xiaomi and HONOR also increased their market share for the last three months of 2023.
Chinese consumers are also turning to new foldable designs developed by companies like Huawei and HONOR. Over two-thirds of consumers are open to getting a foldable phone as their next device purchase, HONOR chief marketing officer Ray Guo claimed at the Fortune Global Forum last November.
Foldables are “a very popular and fast-growing segment in China,” IDC analyst Nabila Popal told Reuters, also noting that “Apple does not have a foldable device—yet.”
Apple is also losing ground on the low-end of the market. Consumers that would otherwise buy older iPhone models are instead turning to locally-made products, Lam wrote.