When Apple reported its December quarter earnings on Thursday, it revealed that China sales had dropped 11.1% on an annual basis.
It was the worst quarter by growth rate since the December quarter a year ago, and marks the sixth straight quarter of declines in Apple’s third-largest region by revenue.
Ahead of Apple earnings, analysts had been fretting about exactly this issue. They cited supply chain checks in the country suggesting weak demand and an overall impression that the Chinese consumer was starting to favor locally made devices from companies such as Huawei and Xiaomi over the iPhone.
China is “the most competitive market in the world,” Cook told analysts on Thursday. In 2024, Apple was third in market share in China, behind Vivo and Huawei, according to an IDC estimate from this week.
When Cook was asked about the company’s performance in China on Thursday by CNBC’s Steve Kovach and analysts on the earnings call, he focused less on the competition and more on how the company’s operations decisions affected China sales.
Cook said there were a few things to keep in mind about the company’s 11.1% decrease in the quarter.
Most notably, Cook cited Apple Intelligence’s absence in China and Chinese affecting sales. He added that the company’s suite of artificial intelligence features for the iPhone 16 had bolstered iPhone sales in the U.S. and other countries where it’s available.
“During the December quarter, we saw that in markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those markets where we had not rolled out Apple intelligence,” Cook said.
The company’s AI software is only available in English for now, but Apple will release a simplified Chinese version in April, Apple said Thursday. That doesn’t necessarily mean Apple Intelligence will launch in China that month, but it does mean Chinese speakers elsewhere will get to test out Apple’s AI.
“Until we get through the regulatory process, nothing is certain, and we’re going through it now,” Cook told CNBC.
He added that the company is looking for a local partner that is licensed by the country to offer their AI to handle tricky or complicated questions, like OpenAI’s ChatGPT does in the U.S.
“There are a number of Chinese companies that do have licenses to operate locally,” Cook said. “What we have to do is choose one and work with them on the integration, just like OpenAI.”
About half of the China revenue decline was because the company had misread demand in the country, Cook said. That led to a “channel inventory” issue. Apple uses the phrase “channel” to describe companies like wireless carriers and retailers that sell Apple devices.
“My point was that our channel inventory reduced from the beginning of the quarter to the end of the quarter, and that was over half of the reduction in the reported results,” Cook said. “Part of the reason for that is that our sales were a bit higher than we forecasted them to be, toward the end of the quarter.”
Apple ended the quarter “a little leaner” in inventory in the country than the company had expected to, said Cook, who also pointed to a nationwide subsidy program that could effectively reduce the cost of some Apple products in the country.
“There is now a national subsidy program that launched on Jan. 20, on categories that some of our products are a part of. It’s a fiscal stimulus, kind of,” Cook told CNBC.
The Chinese government introduced subsidy policies last year to boost consumption and domestic demand, according to analyst firm Canalys. Smartphones were added to the list of eligible products earlier this month. The subsidy is capped at 500 yuan per product, and models that cost over 6,000 yuan, such as Apple’s Pro phones, aren’t eligible.
On the earnings call Thursday, Cook said that some of Apple’s products including smartphones, tablets, PCs and smartwatches would be covered by the subsidy.
“We do see fiscal stimulus occurring, and we’ll be glad to talk about what that looks like on the next call,” Cook said.
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