Apple Shares Dip as China Considers App Store Probe

Apple Inc. (NASDAQ: AAPL) shares fell by approximately 3% in premarket trading on Thursday, following reports that Chinese regulators are considering a formal investigation into the company's App Store practices. The State Administration for Market Regulation (SAMR) is reportedly examining Apple's App Store fees, which can reach up to 30% on in-app spending, as well as its blocking of third-party payment services and app stores. This news has raised concerns about potential regulatory changes and their impact on Apple's revenue and user base in China.

The potential probe comes at a time when Apple is already facing challenges in the Chinese market. In 2024, Apple fell to third place in smartphone sales in China, behind local manufacturers Vivo and Huawei. Additionally, Apple has been struggling with iPhone sales in China, with shipments expected to decline by 6% in the first half of 2025. The company's artificial intelligence features, Apple Intelligence, have not yet been made available in China, which may be contributing to the lackluster demand for iPhones.



If the SAMR decides to open a formal investigation, it could lead to changes in Apple's App Store policies or fees, which could impact the company's revenue generated from the App Store in China. Furthermore, negative publicity or user concerns about Apple's practices could potentially result in a decrease in the user base for the App Store in China.

To mitigate potential negative outcomes from a probe into its App Store practices in China, Apple could consider the following strategic moves:

1. Compliance with local regulations: Apple could proactively work with Chinese regulators to ensure its App Store practices comply with local laws and regulations. This may involve providing more transparency in its app review process, allowing more local apps, or adjusting its revenue-sharing model to better align with Chinese regulations.
2. Expanding local content: Apple could invest in and promote local content and apps in the Chinese market. This could help increase user engagement and loyalty, making it less likely that users would switch to alternative platforms. Apple could also consider offering more localized features and services, such as a Chinese version of Apple TV+ or Apple Music.
3. Strengthening relationships with local partners: Apple could work more closely with local partners, such as telecom carriers and app developers, to build stronger relationships and gain support in the event of a probe. This could involve offering more favorable terms for local developers or collaborating on joint projects.
4. Diversifying revenue streams: Apple could explore new revenue streams in China, such as expanding its services business (e.g., Apple Music, Apple TV+, Apple Arcade) or entering new product categories. This could help reduce the company's reliance on the App Store and mitigate the impact of any potential negative outcomes from a probe.
5. Public relations and communication: Apple could proactively communicate its commitment to the Chinese market and its willingness to work with regulators to address any concerns. This could involve issuing public statements, engaging with local media, or hosting events to showcase its support for the Chinese market.
6. Legal and regulatory support: Apple could engage with legal and regulatory experts in China to better understand the potential outcomes of a probe and develop strategies to mitigate any negative impacts. This could involve working with local law firms or consulting with experts in the field.

Apple's competitors, such as Google and local Chinese app stores, are likely to closely monitor any regulatory changes or investigations related to Apple's App Store practices in China. If Apple faces restrictions or increased scrutiny, Google could potentially negotiate with Chinese regulators to allow the Google Play Store to operate more freely in the country. Local Chinese app stores, such as those operated by Tencent, Huawei, and Xiaomi, may see an opportunity to gain market share if Apple's App Store faces challenges. They could potentially attract more users and developers by offering a more favorable environment for app distribution and monetization.

In conclusion, the potential probe into Apple's App Store practices in China has raised concerns about the company's revenue and user base in the country. To mitigate potential negative outcomes, Apple could consider strategic moves such as complying with local regulations, expanding local content, and strengthening relationships with local partners. Apple's competitors are likely to closely monitor any regulatory changes or investigations, potentially using them as opportunities to expand their own market share. Investors should keep a close eye on the situation as it develops, as any changes in Apple's App Store practices or fees could have significant implications for the company's revenue and user base in China.