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In China, consumers are opting to buy domestic products amid increasing tensions with the West, at least when it comes to their smartphones.

Apple’s iPhone sales in the world’s second largest economy, which are critical to its global revenues, nosedived 24% in the first six weeks of 2024, according to a new report from Counterpoint Research. But over that same period, China’s tech giant Huawei saw its sales surge 64%. Apple has struggled against “stiff competition” for high-end products from the “resurgent” Chinese competitor, Counterpoint’s senior analyst Mengmeng Zhang said of the data in a statement.

Since last summer, Huawei has benefitted from the release of its Mate 60 phone series after struggling to source parts for many months due to Western sanctions. The new phone features 47% Chinese-made parts, 18 percentage points higher than the previous model, and is even powered by a Chinese-manufactured chip. The Mate 60 amounts to a major upgrade for many Huawei users, but Apple’s iPhone 15 isn’t quite as enticing among its user base, according to Counterpoint’s Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now,” she said.

Increasing competition in the Chinese smartphone market is a big concern for Apple, given the company’s China iPhones sales hit $20.8 billion last year, a sizable chunk of their total phone sales of $69.7 billion. Apple’s Chinese smartphone market share also dropped to 15.7%, from 19% a year ago, making it the fourth most sold phone in China, compared to second in 2023.

Apple’s stock took a hit on the news of its sales struggles on Tuesday, sinking over 2.5% by midday. Shares of the big tech giant are now down over 8% year-to-date after surging 46% in 2023. Weaker-than-forecast iPhone demand, a lack of AI development compared to other big tech competitors, the decision to abandon a decade-long bet on EVs, and a $2 billion fine from the European Commission that brought antitrust threats front and center are the main reasons for the weakness.

Even Wedbush’s tech analyst Dan Ives, a noted Apple bull, admitted that Wall Street’s fears about Apple’s prospects “resemble a horror show right now,” noting that Chinese smartphone demand is “very sluggish” at the moment.

The veteran analyst remains bullish about Apple over the long-term, however, due to “pent up demand” for smartphone upgrades, which should lead to 270 million unit sales for the iPhone 16. Ives also believes Apple will begin to compete with its big tech rivals in the AI space after ditching its EV dreams.

“Over the last decade we have been through many challenging periods in the Apple story and we handheld investors through these stormy periods just like today,” he wrote. “This is no different and in our view brighter days will be ahead for Apple although right now the China story remains the dark cloud over the name in the near-term.”

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