Apple Stock Rises After Report Points to Strong iPhone 16 Sales in China

Apple stock is up over 1% in early US price action today and is trading near its all-time high after a report said that sales of the company’s latest iPhone 16 were running strong in China.

Research firm Counterpoint Research said that iPhone 16 sales were up 20% in the first three weeks since their launch as compared to the iPhone 15 that went on sale last year.

“We’re seeing strong iPhone 16 series unit sales in China,” said Counterpoint Research while adding that sales of iPhone 16 Pro and Pro Max models were particularly strong in the world’s biggest smartphone market.

Apple Is Facing Competition in China

Reports of Apple’s latest iPhone doing well in initial weeks in China are encouraging for two reasons. Firstly, the company is battling intense competition in the country and the iPhone 16 and latest smartphone went on sale on the same day as Huawei with the Chinese smartphone giant upping the ante against the Cupertino-based company.

Apple has lost market share to domestic Chinese smartphone brands in recent quarters. In response to a question on whether the weakness in China is more an Apple-specific issue as the company is facing heat from domestic companies, Cook did not provide a straight answer and said, “competitive environment there (China) is the most competitive in the world.”

While Apple is betting on markets like India to offset the slowdown in China, the country might not be immediately able to fill the gap.

China is Apple’s biggest market outside North America and winning in that market is important for the company.

Analysts Were Apprehensive About iPhone 16

Secondly, a lot is riding on the iPhone 16 for Apple which is the first artificial intelligence (AI)-enabled smartphone from the company. While Apple was seen as a laggard in the AI race, the company announced several exciting features at its Worldwide Developer Conference (WWDC) in June. It unveiled what it termed “Apple Intelligence” while also announcing that ChatGPT would be coming to Apple devices.

However, Apple hasn’t yet released Apple Intelligence features and will roll them out gradually beginning later this year. Moreover, these features might not be initially available in Europe and China due to regulatory issues.

Reports of Apple iPhone 16 getting good traction are all the more encouraging as some analysts had tepid expectations from the model. Last month, Ming-Chi Kuo who is a leading Apple analyst raised an alarm about the sales outlook for iPhone 16.

“The delivery times of the iPhone 16 Pro series are significantly shorter than those of the 15 Pro series. In addition to the shipment increase before the pre-order, the key is that demand is lower than expected, as evidenced by the YoY decline in first-weekend sales,” said Kuo in their note.

The Success of iPhone 16 is Crucial for Apple

The success of iPhone 16 is crucial for Apple as it is the first model to feature AI capabilities. Apple is also quite upbeat about its Apple Intelligence and during the fiscal Q3 2024 earnings call last month, CEO Tim Cook said, “We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers’ lives. We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential.”

iPhone revenues have sagged in recent quarters and sales fell 1% YoY to $39.3 billion in the most recent quarter even as the metric was ahead of the $38.8 billion that analysts were modeling. Also, the revenues were higher YoY on a constant currency basis.

iPad revenues were $7.16 billion which was much better than the $6.61 billion that analysts were expecting. Mac revenues were $7.01 billion which was slightly lower than the $7.02 billion that analysts were expecting. Importantly, Services revenues rose 14% YoY to $24.2 billion and the metric was ahead of the $24.01 billion that markets were expecting.

Apple’s installed base of devices reached a new record high and while the company did not spell out the exact number, earlier this year it had said that the figure has surpassed 2.2 billion.

Analysts on AAPL Stock

Earlier this week, Jefferies reiterated AAPL stock as a hold and said that iPhone 16 sales would at best be a short-term driver. “The GOOG-AAPL deal could be at risk, but the potential damage is likely limited while timing of a final decision potentially far out. On Oct 9, the DOJ decided GOOG has engaged in antitrust practices in monopolizing the search market, and it will impose certain sanctions against GOOG for rectification. One very likely rectification is to ban GOOG from paying AAPL to be the exclusive search engine on iPhone,” the brokerage said in its note.

Several prominent fund managers have sold Apple shares this year. In Q2 2024, Warren Buffett sold nearly half of Apple shares in the quarter – a company he has praised many times and even termed his previous round of selling as a “mistake.”

At Berkshire Hathaway’s annual meeting in May, Buffett said that he was selling Apple shares over tax considerations. However, the relentless selling raised concern that the “Oracle of Omaha” is also worried about Apple’s valuations.

All said, AAPL, which lost out the title of the world’s biggest company to Microsoft and later Nvidia earlier this year has reclaimed the crown and is now very close to its record highs.

Markets next look forward to the company’s Q4 earnings which would help clear the air over the initial performance of iPhone 16 as the model was on sale for a couple of weeks in the quarter.