This is its best two-month performance since the COVID-19 era and the profits are largely tied to renewed demand in China and the United States, its two largest and most volatile markets.

The latest data from Counterpoint Research show Apple reclaiming the top spot in China for May. But it didn’t happen by chance. 

The company rolled out aggressive discounts, as high as 2,530 yuan ($351), across e-commerce platforms in China, a move seen as necessary to compete with a fast-rising Huawei and other domestic rivals. Despite the bump in sales, this pricing strategy signals that Apple is under pressure.

“Q2 iPhone performance looks promising at the moment, but as always, swings either way are dictated by two markets – the U.S. and China,” said Ivan Lam, senior analyst at Counterpoint Research.

Apple is manoeuvring around geopolitical and economic challenges. In response to former President Trump’s proposed 25% tariff on non-U.S.-made iPhones, Apple rerouted 97% of its India-produced iPhones to the U.S. between March and May. This tactical shift helped shield the company from higher import costs, for now.

Still, the Chinese government has excluded Apple from some public sector subsidies, and Huawei is regaining the top place in the local market. Analysts believe this could drive Apple’s shipments down in 2025, even if the broader Chinese smartphone market grows by an estimated 3%.

The impact of global trade shifts isn’t limited to distribution routes. High tariff issues are beginning to affect product pricing. Counterpoint warns that Apple’s iPhone 17 series, expected next year, could come with higher price tags as production costs jump by an estimated $900 million due to U.S. tariffs.

Globally, Counterpoint has revised its 2025 smartphone shipment growth forecast to 1.9%, down from an earlier projection of 4.2%. The revision shows the worries over tariff disruptions and economic instability across major markets.

Despite short-term wins, Apple is still facing challenges. Between the strategic rerouting of production, deep discounts, government policy shifts, and growing local competition, the company is walking a tightrope.

And while sales are up today, sustaining that growth will depend on how well it can keep both the Chinese and American markets on its side.

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The company recorded a 4% rise in overall revenue, reaching $124.3 billion, while net income climbed to $36.33 billion, a 7.1% increase from the previous year.

iPhone sales took a hit, particularly in China, where revenue dropped by 11.1% to $18.51 billion. This marks the steepest decline in the region since early 2024, as Apple faces growing competition from domestic brands like Oppo, Vivo, and Huawei. 

The company’s struggles in China have partly resulted from the delayed rollout of Apple Intelligence, a key feature of the iPhone 16, which remains unavailable in the country.

Speaking with CNBC, Apple’s CEO, Tim Cook, noted the impact of this limitation: “During the December quarter, we saw that in markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those markets where we had not rolled out Apple Intelligence.” 

While the feature is set to support Chinese later this year, regulatory challenges have stalled its launch in mainland China. Apple has reportedly partnered with Baidu to introduce AI-powered capabilities in the country, but progress has been slow.

Beyond smartphones, Apple Services division is expanding, setting a new record with $26.3 billion in revenue for the quarter, a 14% year-over-year increase. The company also announced that it has surpassed 1 billion subscriptions across its services, including Apple Music, iCloud, Apple TV+, and third-party apps on the App Store.

Other segments also performed well, with Mac and iPad sales rising by 15% following the release of new models. The company now has an active install base of 2.35 billion devices, up from 2.2 billion a year ago.

Even with the slowdown in iPhone sales, Apple’s strong performance in services and hardware refreshes has reassured investors who initially had doubts.

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This growth is attributed to the strong initial performance of the new Apple iPhone 16 series, which debuted on September 20, just a week before the end of the fourth quarter. 

CEO of Apple, Tim Cook noted that early sales of the iPhone 16 outpaced those of the iPhone 15 during a similar timeframe, a positive reception to Apple’s latest product.

However, despite this encouraging news, the company’s overall revenue for the fourth quarter came in at $94.93 billion, slightly above the anticipated $94.58 billion. 

Earnings of $1.64 per share, excluding a one-time tax charge, also surpassed expectations of $1.60 per share. Nevertheless, Apple’s stock saw a decline of 1.4% in after-hours trading, revealing investor doubts, particularly regarding disappointing sales figures in China, which fell short of forecasts.

Apple’s Chief Financial Officer, Luca Maestri, disclosed a cautious outlook for the upcoming fiscal first quarter, forecasting revenue growth in the low to mid-single digits. This contrasts sharply with analysts’ expectations of a 6.65% growth to approximately $127.53 billion. 

Again, while Apple anticipates double-digit growth in its services sector, which includes services like iCloud and Apple Music, questions were raised about the potential decline in hardware revenue.

China’s market remains a focal point of concern, with analysts like Tom Forte from Maxim Group highlighting the risk of continued weak sales in the region. 

Apple executives did not provide specific insights into the iPhone’s performance in China or comment on when the new AI features would be made available in the country, further intensifying investor apprehensions.

With these challenges, Apple is actively pursuing an aggressive AI strategy, integrating AI capabilities into its latest operating systems. 

Cook confirmed that users are adopting the new iPhone operating system, which includes enhanced AI features, at double the rate seen in the previous year. 

However, not all promised features have been launched, which has led to speculation regarding potential delays in device upgrades by consumers.

Capital expenditures also saw an increase, climbing by $2.91 billion from the previous quarter to $9.45 billion. This rise reiterates Apple’s focus on infrastructure, though the company continues to leverage third-party data centres for certain AI functions, focusing on maintaining privacy and security through its own in-house chips.

In other segments, Apple faced challenges as sales in its services business fell short of expectations at $24.97 billion, below the $25.28 billion forecast. Added to this, Mac and iPad sales of $7.74 billion and $6.95 billion, respectively, did not meet analyst projections. 

Sales in the home and wearables division, encompassing products like the Apple Watch and AirPods, also dipped to $9.04 billion, missing estimates of $9.2 billion.

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