Sales growth and challenges in China

Apple's sales growth is expected to be in the single digits this year, driven mainly by its services business. However, product sales remain stable, especially in China, where Apple faces significant challenges. Trade tensions between the US and China under the Trump administration could also pose problems (tariffs on products imported from China), although the company may benefit from US exemptions. A deterioration in relations could harm product sales in a market that is already difficult for Apple.

Chart Apple Inc.

AI integration and product prospects

ChatGPT's integration with Siri, announced in December 2024, represents the biggest artificial intelligence update for iOS to date. Still, it's evidence of a marked lag in terms of AI: Apple hasn't been able to create conversational AI on the level of OpenAI's. However, this innovation will undoubtedly improve the user experience and stimulate product upgrades. The launch of iPhone 17 in September 2025 should benefit from this integration, although the weakness of consumers in China, a crucial market for the Californian firm, may limit this impact.

The dominant position of the App Store

Since January, Kevan Parekh, Apple's new CFO, replacing Luca Maestri, has recently had to answer tricky questions in a London court about App Store margins. The plaintiffs claim that Apple makes margins of over 75% on the App Store, which Parekh disputes, claiming that these figures are not accurate. An antitrust lawsuit accuses Apple of monopolizing the app market, with a demand for 1.75 billion euros for commissions deemed excessive. Apple defends itself by touting the advantages of its iOS ecosystem. To comply with European regulations, Apple has introduced measures enabling developers to offer alternatives to the App Store, but the controversy persists.

Other complaints include concerns over a $20 billion payment from Google to Apple for default search engine status, which could be threatened by an antitrust ruling from the US Department of Justice.

Challenges on the Chinese market

iPhone sales in China have slowed, down 48% year-on-year in November 2024. Apple continues to lose market share in China, with an estimated loss of 400 basis points in November. Increased competition from Huawei, which recently launched its new Mate 70 phone, could keep the pressure on iPhone sales in China in the short term.

iPhone production forecasts

Apple has adjusted its production forecasts to reflect sales data and strategy. Sales of the iPhone 16 remain stable, with a slight increase for the Pro and ProMax models, but a double-digit drop for the 16 and 16 Plus models compared with the previous year. Apple expects to continue selling the iPhone 16 for several years, due to its AI compatibility. For 2025, iPhone 17 production is estimated at 94 million units, with conservative production plans for the 17 Plus model.

Outlook for iPad and MacBook

Sales of iPad Pro OLED models are below expectations due to their high price. Apple plans to continue adopting OLED for Pro models, but adoption for Air models is postponed until 2028 or later. This decision could benefit Apple's LCD value chain.

Valuation

Apple faces a range of challenges for 2025, from geopolitical tensions and economic uncertainties to increased competition in China. Although AI integration and product innovations offer opportunities, investors remain cautious. It's hard to pay more than 30 times 2025 earnings for single digit growth, say investors.

Warren Buffett sells his Apple shares

The venerable Warren Buffett has sold the majority of his position in Apple over the past year, having initiated his position in 2016 when the company was buying back its own sold-out shares in droves. If at 13 times earnings, the Oracle of Omaha didn't hesitate to buy Apple shares massively in 2016, at 31 times at the start of 2025 and given the current (and potential future) challenges, he prefers to lighten his position. And understandably so.