Apple stock slips after CEO Tim Cook pitches China
Apple (AAPL) shares closed lower Monday, extending a notable 2024 decline for the world's second-largest company as it balances the challenges of aggressive regulations in Europe and the U.S. and a realigning of its broader position in Asian markets.
CEO Tim Cook wraps up a five-day visit to China, as part of the tech giant's renewed Asia push, early this week to revive growth in the world's biggest smartphone market — which also happens to host the most critical elements of its global supply chain.
Last week, Cook opened the company's newest flagship Apple Store in Shanghai, the second-largest behind its Fifth Avenue location in New York and met with key suppliers and government officials including Commerce Minister Wang Wentao ahead of a key business development summit that ended Monday.
China remains one of the most important markets for Apple, accounting for around 20% of its global sales, pegged last year at around $386 billion, although that share has fallen steadily since 2015 and has largely plateaued since the COVID pandemic of 2020.
Drew Angerer/Getty Images
Increased competition from lower-priced rivals and a drive by Beijing to bolster the fortunes of state-backed Huawei Technologies have added to Apple's China-sale challenge, as have the ongoing trade tensions with the U.S. and Washington's move to limit the export of high-end technologies.
Apple's China sales pressures
Reports have suggested that Beijing has banned the use of iPhones by government employees and state-backed enterprises to support the launch of Huawei's new Mate 60 handset.
Apple's fourth quarter 2023 China sales fell nearly 13% from a year earlier, the company reported in February, even as global iPhone revenue surprised to the upside at just under $70 billion.
The decline prompted a rare move from Apple to cut the price of its new iPhone 15 by around $70, or 5%, as part of a Lunar New Year promotion in late January.
Cook said Apple would launch its new Vision Pro headset in China later this year, telling CCTV that he remains "very confident" regarding domestic market prospects.
“I love China, I love being here, I love the people and the culture," Cook said on a broadcast streamed through CCTV's Weibo social media account. "Every time I come here, I am reminded that anything is possible here.”
However, Cook needs to balance the need for a robust sales base in China and the support of officials in Beijing with its broader Asia efforts as it gingerly retools its supply chain to locations in Vietnam, Thailand, and India. The goal is to reduce its reliance on a single location — and to ease the political risk tied to tensions between Beijing and Taiwan.
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"There's no supply chain in the world that's more critical to us than China," Cook reportedly told the state-controlled China Daily over the weekend, but the group's recent push into India suggests it's playing a much longer game.
"The timing of this trip was important as, in essence, Apple needs China and China needs Apple despite all the noise," said Wedbush analyst Dan Ives. "Apple needs to turn this headwind into a tailwind heading into the iPhone 16 release this fall and it all starts with reaffirming Apple's presence" in the world's second-largest economy.
Apple's journey: A passage to India
At the same time, however, Cook is shrewdly making inroads into India, an economy boasting more than a billion citizens and a huge, largely untapped, iPhone market.
Apple doesn't break out India sales separately, but Cook said revenue hit a record last quarter, and data from CounterPoint Research suggests it topped more than 10 million iPhone shipments in the Android-dominated market last year.
Its overall market share, however, is only around 6.5%, well south of the 20% stake it commands in China, according to International Data Corp. figures. That provides a huge opportunity for sales growth over the coming years.
India Prime Minister Narendra Modi also wants to see that nation become a major export hub for smartphones, and he has courted Apple and others in setting up new manufacturing bases, including an iPhone 15 assembly facility, run by Taiwan-based Foxconn, in Tamil Nadu.
That may be why his government reversed an earlier rule earlier this month, following intense lobbying from the U.S., to require laptop makers to obtain licenses for all shipments into the estimated $8 billion a year market.
Apple faces the long arm of regulatory law
Apple's Asia fortunes could be even more critical over the coming years as it grapples with a slowdown in U.S. demand, which some have tied to its lack of new product innovation, and an intensifying regulatory environment in key Western markets.
EU regulators, which have long held U.S. tech giants in their crosshairs, opened an antitrust probe into Apple this week under the region's newly enforced Digital Markets Act.
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Last week in the U.S., Attorney General Merrick Garland unveiled details of an antitrust suit that accused the tech giant of running a monopoly in the smartphone market that if left unchallenged "will only continue to strengthen."
"We do see an increasing likelihood that AAPL will be forced to incrementally open up its ecosystem over time across all geographies but view monopolistic claims as a bit of a reach," said CFRA analyst Angelo Zino.
"All eyes will be on whether recent changes in Europe and the pending U.S. litigation will impact the growth trajectory of Apple's high-margin services business."
The weakening sales, tepid innovation and long-armed regulators have combined to shave more than $300 billion from Apple's market value this year, with the shares falling more than 8% and trailing only Tesla TSLA as the worst-performing Magnificent 7 stock.
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Ives at Wedbush, however, sees the recent events as strengthening the case for Apple's renewed Asia push, noting that China's recent foreign investment slump and moribund domestic economy make the two necessary if wary, bedfellows.
"Cupertino is facing regulatory battles from all directions," Ives said. "And while China has been a headache for Apple over the past year, it appears to be changing its tune as the threat of Apple taking its supply chain outside China has been heard loud and clear from Beijing."
"We have seen Apple's back against the wall before and we view this period as just another chapter in the Apple growth story with AI now on the doorstep," he added.
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