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WTF? Apple Drops Nearly 4% Amid Struggles in China and a Downgrade

Stock SpotlightTuesday, Jan 21, 2025 10:28 am ET

1min read

Apple shares opened nearly 4% lower on Tuesday, bringing its one-month cumulative decline to a staggering 15%!

Downgrade Sparks Concerns

Analysts at Jefferies downgraded Apple's stock, citing weak iPhone demand and tepid adoption of new AI features. Led by strategist Edison Lee, the team lowered Apple's rating from Hold to Underperform and slashed its price target by 13% to $200.75.

Our concerns over soft iPhone demand have materialized, noted Jefferies analysts, referencing a report that indicated a 4% decline in iPhone shipments for the December quarter. They also pointed out that AI is unlikely to spark a super-upgrade cycle in the near term. While Apple has heavily promoted its AI capabilities, a survey revealed that U.S. consumers don't yet find AI features compelling, suggesting they are unlikely to purchase new devices solely for these updates.

Struggles in the Chinese Market

Apple's biggest challenge lies in China, where market conditions have significantly weakened. According to Counterpoint Research, iPhone sales in China dropped 18% in Q4, pushing Apple to third place behind Huawei and Xiaomi. This marks a sharp contrast from the same period last year when Apple led the market.

Huawei, Apple's largest competitor, performed exceptionally well, with a 15.5% increase in sales. Several factors are contributing to Apple's weak performance in China, including:

Limited functionality of AI features in China

Government restrictions on the use of iPhones and other foreign brands by officials

Economic challenges that have led consumers to reduce discretionary spending

The rapid rise of Chinese smartphone brands has further eroded Apple's dominance. Xiaomi, in particular, has strengthened its brand image through the success of its electric vehicle business, which has helped boost demand for its flagship Mi 15 series smartphones.

Outlook for 2025

Looking ahead, Counterpoint Research analysts maintain a cautiously optimistic outlook for China's smartphone market in 2025. Despite economic challenges, they project low single-digit growth in sales, reflecting a slow recovery in the sector.

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