Apple's Growth Challenges and Opportunities in China Market

Apple's future growth hinges on overcoming geopolitical challenges and enhancing its intelligence features.

### Apple's Growth Prospects Amidst Challenges in China
* 📉 Ongoing concerns about Apple's performance in China have been highlighted, with guidance suggesting a **low single-digit growth forecast**, disappointing compared to the street's expectation of **7%**.
* 🚀 Despite this, there is optimism surrounding Apple's intelligence features, which are anticipated to **significantly boost revenue growth** over the next couple of years.
* 📊 Analysts are likely to adjust their growth projections to align with recent performance, settling between **5% to 6%**, indicating a **slower acceleration than hoped**.
* 🇨🇳 The fractional growth of **0.5%** in China raises questions about the future growth potential, as the market was expected to see increases of **5% to 6%**.
* 🔍 The introduction of new features is seen as a "**nice to have**" for consumers, but their necessity may become apparent as **integration and developer access improve** in the coming year.
* 🌍 Geopolitical factors will play a crucial role in Apple's success, particularly in **expanding into markets like Europe and China**, potentially requiring partnerships with local companies like **Baidu**.
* 📈 While services growth remains strong, regulatory challenges loom, particularly concerning the **App Store** and the **search placement deal with Google**, which constitutes a **significant portion of Apple's income**.
* 💡 Overall, there is cautious optimism that Apple's intelligence features will eventually yield positive results, but the path to that success is **fraught with challenges**.

There has been ongoing concern when it comes to Apple in China. Is that the key takeaway for you? Well, the key takeaway for me as someone who's optimistic that these Apple intelligence features are going to accelerate revenue growth, and I have much more ambitious expectations for the next year and two years. One of the big takeaways for me is the guidance kind of threw cold water on this 20% kind of outside hope that we'd start to see some better acceleration in the December quarter. As you mentioned, the low single-digit guide, the street was at 7%. So probably analysts are going to shake out somewhere between 5 to 6% similar growth rates we just saw in the September quarter. And so from my perspective, the big takeaway here is that the street was right, that this is going to take some time, a few quarters before we start to see this acceleration in growth. And I think the guidance just confirmed

that. And then just to dive into the China question, I previewed this and said they've got to they have to have China growth in the quarter. I think it was actually like up like 0.5%. I mean, it was fractional comps were really easy. They should have been up five, 6% or the street was out. So I think there's something else going on in China. Jeanne, it's a fair question of where that future growth will come from. Right. And that's great because we can talk about technology. You've been using Apple intelligence in its early form. And when you think about China, there was some evidence, albeit third party data evidence, that the consumer in China might be buying iPhone 16 in the hope that in the future the platform would be available there because, of course, it's not now, the regulator won't allow it. How would you modeling that? Well, the timing of when some first have

been using the features, and I would describe the features as nice to have but not need to have yet. I mean, they do a great job of consolidating my messages and notifications. I think that as far as kind of the, you know, how this plays out, the geographic piece is really important. It's just going to be additional English countries for the rest of this year. And so that's going to be like the UK, Canada, Australia. But then we still have this answer question about when does Europe start going? And then China, of course, it's probably they're going to have to do some sort of partnership with Baidu to get there. And so for this cycle to really be a super cycle, there's like these geopolitical things that need to fall into place. And ultimately, I believe that they will fall into place. I think Apple's got clout to make those things happen. And then additionally, even though I

describe the features as nice to have, not need to have. I just want to quickly frame in why I believe these will be need to have, starting kind of first quarter of next year, once they start integrating more of the functionality, but also open up more of this with developers. We get a gentle guy. There is optimism that, therefore, eventually that Apple intelligence will bear fruits. What is bearing fruits right here, right now, is the services side, but that's under duress from a regulatory perspective. If we're thinking about the App Store, for example, how do you think about regulation in. It's the Black Swan potential negative event here is that services growth at 12%, The shoes at 13, call it a wash. But no, I think that this came up on the Apple call last night. It came up on the Google call two nights ago. I think services continues to do well because their base keeps growing.

hitting record highs. But I think that, you know, there's still this piece out there, and I would put a low probability of ten, 15% that something happens between the relationship between Google and Apple on that, that the search placement deal with Safari, and that's probably 10 to 15% of their income. So I think that there's a, that's something else I'm focused on.

Apple’s Tepid Forecast, China Weakness Spark Concern

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Bloomberg Technology

Apple's Performance and Growth Challenges

Apple's revenue growth expectations have been tempered by low guidance, with analysts predicting similar growth rates to the previous quarter.

The company's performance in China has been weak, with only a fractional increase in growth, raising concerns about future expansion.

There is evidence that consumers in China are purchasing the iPhone 16 in anticipation of the platform's future availability, despite current regulatory restrictions.

Apple's Feature Expansion and Geopolitical Influence

Apple's features are currently nice to have, but are expected to become essential by next year with increased functionality and developer integration.

The company's expansion into English-speaking countries is underway, with plans for Europe and China in the future.

Apple's clout is believed to play a significant role in navigating the necessary geopolitical changes for a successful super cycle, while the services side of the business continues to grow despite regulatory challenges.

Google's Relationship with Apple and Its Impact

The relationship between Google and Apple, particularly the search placement deal with Safari, is a potential risk factor for Google's income.

This deal is estimated to contribute 10 to 15% of Google's revenue.

The speaker assigns a low probability of 10 to 15% for any significant impact from this relationship.