Apple is facing challenges with market share losses in China. According to IDC’s latest smartphone statistics, China’s smartphone shipments increased by 3.3% in the first quarter.
Huawei’s sales in China rose by 10%, whereas Apple’s sales dropped by 9%. Xiaomi emerged as the top vendor with an 18.6% market share, followed by Huawei and Oppo with 18% and 15.7%, respectively.
Shift Toward Domestic Brands
For years, iPhones were considered a status symbol in China. However, there is now a shift towards domestic brands among consumers.
Concurrent challenges include the impact of tariffs on China, potentially affecting Apple’s profit margins in the United States. This could complicate Apple’s pricing strategies while competing with local manufacturers.
These figures presented suggest a clear shift in consumer preference within China’s smartphone market. From what we can observe, Apple is not adjusting rapidly enough to the uptick in demand for homegrown brands. While total smartphone shipments in China saw growth, it’s telling that Apple moved in the opposite direction. A 9% year-on-year fall in sales, especially when measured against a 10% rise for a primary competitor, underlines not just a market problem, but also a potential misalignment in consumer appeal.
The resurgence of Huawei is particularly noteworthy, not just for its raw numbers, but for the broader trend this indicates. We are seeing a collective push among Chinese buyers towards domestic technology – not simply out of price considerations, but owing to perceptions of quality, innovation, and national branding. With Xiaomi now leading by volume, followed closely by Huawei and Oppo, the pecking order is being reshuffled, and not by small margins. What had been a lock-in for western brands appears to be waning.
Impact of Tariff Dynamics
For us, this reversal serves as more than a warning flag. When consumers substitute higher-margin imports for locally made alternatives, it’s not just lost unit sales; we’re talking about a potential compression in overall profitability. Market participants with leveraged exposure to high-end smartphone performance — especially those banking on generous ASP growth — should pay extra attention. Softening demand in China for one of the highest-priced consumer electronics products affects not only near-term revenue, but also the broader multiple investors are willing to assign.
The second concern adds further weight. The tariff dynamics are not new, but their ramifications on pricing are particularly severe when margin pressures already exist. If production costs increase while competitive pricing remains tight due to aggressive positioning by rivals, that steers us into uncomfortable territory for long-term earnings expectations. The challenge isn’t abstract — higher input costs alongside falling sales volume is what erodes EPS forecasts faster than top-line misses alone.
We should stress the timing. These data points come just as new phone cycles approach critical inventory decisions. As such, optionality on both supply allocation and promotional funding becomes limited. Near-term bets on a rebound would need to take this delay into account. Broadly, it’s not the moment to assume mean-reversion, especially when rival firms are building stronger brand identity within their home base.
In terms of positioning, we believe the spread markets will continue to price this divergence in performance. Premia may widen temporarily, but there’s already evidence that implied vol on the downside has rerated on these concerns. Hedging remains expensive, but so is being caught unprotected with high delta exposure. Shorter-dated puts have drawn attention, and we see that as reasonable post-event risk protection rather than a directional call. Remember, the event in question has already triggered a round of overweight-to-neutral realignments among some institutional portfolios.
What matters now is not just how the firm adapts its pricing strategy in North America — though that will be tested — but how investors treat its weighting in Asia-reliant revenue models. We suggest closely following roll data over the next few sessions: a steepening skew and elevated front-month activity will suggest expectations of further news developments. If not, flattening curves may mark a temporary low in downside sentiment.
In any case, we’ll be watching for quiet accumulation in call spreads as a sign of shifting sentiment. But for the moment, the short-term flow continues to reward defensive postures and measured reassessment.
