Apple’s iPhone 16 Boosts Sales in China Amid Market Challenges

Apple (NASDAQ: AAPL) has received positive news regarding strong iPhone growth in China. Data from Counterpoint Research indicates that iPhone 16 sales have surged 20% in China in the first three weeks since its launch, compared to last year’s release of the iPhone 15.

Additionally, higher-end models, the iPhone 16 Pro and Pro Max, have gained even more traction, with sales climbing 44% compared to their predecessors. This momentum is encouraging for Apple and its investors, given recent challenges in the Chinese market.

Challenges in the Chinese Market

Apple’s performance in China has been disappointing lately, marking it as the company’s worst-performing region this year. In the first nine months of its fiscal year, Greater China sales dropped nearly 10% to $51.9 billion. The trend continued with a 6.5% decline reported in the most recent quarter.

In contrast, the broader smartphone market is experiencing growth. According to IDC, the smartphone market in China saw an acceleration of 8.9% in Q2, with local brands like Vivo, Huawei, and Xiaomi achieving strong double-digit growth.

Despite efforts to boost sales through promotions, Apple slipped to the No. 6 spot in market share by shipments in Q2, with its unit sales falling by 3.1% during that time.

China accounts for approximately 17.5% of Apple’s overall sales, making it a crucial market. The sharp increase in iPhone 16 sales and preference for the Pro models provides a hopeful outlook. Although the iPhone has weakened as a luxury item, interest in the AI-powered features of the new model is emerging.

Interestingly, the Chinese version of the iPhone 16 does not yet support the Apple Intelligence feature in Chinese, with no expected updates until 2025. Apple is exploring partnerships with local tech firms to introduce these AI features. Nevertheless, Chinese consumers are still showing a keen interest in iPhones. If Apple manages to roll out these features in 2025, it could catalyze further sales growth in the region.

Alongside the robust iPhone 16 sales, Apple has secured a partnership with China Mobile, which serves 1 billion subscribers, to provide access to Apple Music. As the only Western music service available in China, this deal could provide new opportunities for Apple in a highly competitive market.

Image source: Getty Images.

Positive Indicators for Global Demand

The strong early sales in China may be a positive sign for global demand for Apple’s products. The iPhone 16’s popularity is notable, especially given that its main selling feature is not yet fully available.

Apple aims for the iPhone to trigger a cycle of hardware upgrades, encouraging users to upgrade their phones to access the latest AI features. Since the iPhone makes up the largest share of Apple’s sales, an upgrade cycle could significantly enhance revenue and profits. Analysts predict that Apple will sell 234 million iPhones in fiscal 2025, indicating only a 4% increase from fiscal 2024 projections.

A more pronounced upgrade cycle could help Apple exceed these expectations. Beyond device sales, the company is likely to benefit from the increasing sales of AI-powered applications. Apple typically receives a 30% cut from developers for app sales in most markets. This segment is evolving into the fastest-growing part of Apple’s business, and as developers create more AI applications, profits are expected to rise.

Trading at a forward price-to-earnings (P/E) ratio of 28 times based on next year’s estimates, Apple is nearing the higher end of its valuation range. However, Apple has become one of the largest companies globally by maintaining a loyal customer base and a strong luxury brand image. Its integrated system yields steady high-margin service revenue, which compounds over time, and the incorporation of AI is likely to amplify this trend.

Consequently, Apple seems poised to continue delivering value for investors over the long term.

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Geoffrey Seiler has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.