Apple Faces Growth Bottleneck in 2025: Stagnant iPhone Sales, Stalled AI Strategy, and Persistent China Market Weakness

Apple Faces Growth Bottleneck in 2025: Stagnant iPhone Sales, Stalled AI Strategy, and Persistent China Market WeaknessA recent industry research report by TF International Securities analyst Ming-Chi Kuo highlights a series of significant challenges facing Apple in 2025, including near-stagnant iPhone sales growth, the underperformance of its AI service, Apple Intelligence, and continued decline in the Chinese market. The report provides an in-depth analysis of Apple's predicament and offers a cautious outlook for its future

Apple Faces Growth Bottleneck in 2025: Stagnant iPhone Sales, Stalled AI Strategy, and Persistent China Market Weakness

A recent industry research report by TF International Securities analyst Ming-Chi Kuo highlights a series of significant challenges facing Apple in 2025, including near-stagnant iPhone sales growth, the underperformance of its AI service, Apple Intelligence, and continued decline in the Chinese market. The report provides an in-depth analysis of Apple's predicament and offers a cautious outlook for its future.

Weak iPhone Sales Growth: Cautious Production Plans and Market Expectation Gap

The report indicates Apple holds a cautious outlook for iPhone sales in 2025. iPhone shipments in 2025 are projected to be 8% to 10% lower than market consensus. This cautious approach is reflected in Apple's discussions with its major suppliers regarding 2025 iPhone production plans. Even considering the anticipated launch of the new iPhone SE 4 in the second half of the year, iPhone shipments in the first half of 2025 are still expected to decline by approximately 6% year-over-year. Specifically, Q1 2025 shipments are expected to be flat quarter-over-quarter, mainly due to January orders placed before the Trump tariffs, while Q2 shipments are projected to decline.

China, one of the world's largest smartphone markets, is crucial to Apple's performance. However, the report notes that while overall Chinese smartphone shipments in December 2024 were roughly flat compared to December 2023, iPhone shipments declined by approximately 10% to 12% year-over-year, reflecting a continuing shrinkage of Apple's market share in China. This downward trend is concerning, suggesting increasing competitive pressure in the Chinese market.

To stimulate demand, Apple plans to launch an ultra-thin iPhone (approximately 5.5mm at its thinnest point) and a foldable iPhone in the second half of the year. However, due to the ultra-thin design, both models may only support eSIM. Given the limited eSIM adoption in China, unless Apple modifies the design, shipments of these models could face significant challenges. While the ultra-thin iPhone 17 might ship more units than the iPhone Plus, component downgrades, a high price point, and a similar user experience to current models may prevent it from significantly boosting overall iPhone sales.

Based on this analysis, Kuo predicts approximately 220 million iPhone shipments in 2024 and 220 to 225 million in 2025, significantly lower than the market consensus of 240 million or more. This prediction highlights the immense pressure Apple faces in maintaining iPhone sales growth.

Apple Intelligence Fails to Boost Hardware Upgrades and Service Revenue: Structural Challenges in AI Strategy

Beyond weak iPhone sales growth, Apple's AI strategy also faces significant challenges. The report indicates no evidence that Apple Intelligence has driven hardware upgrades or service revenue growth. Apple CEO Tim Cook stated in a Wired magazine interview last month that Apple Intelligence pricing has never been internally discussed. This directly refutes earlier optimistic predictions by some analysts and media outlets that Apple Intelligence would generate subscription revenue and boost service business growth in the foreseeable future.

A previous survey indicated that most iPhone users are not interested in Apple Intelligence. This aligns with Kuo's latest supply chain survey, which also shows Apple Intelligence hasn't stimulated iPhone replacement demand. This evidence suggests Apple Intelligence's market performance is far below expectations, failing to live up to Apple's hopes.

Apple's efforts to promote AI on its devices face multiple structural challenges. While Apple Intelligence garnered significant attention at its WWDC 2024 debut, its appeal has diminished considerably compared to the rapid development of cloud-based AI services in the following months.

Kuo's report expresses a pessimistic outlook for Apple Intelligence's long-term prospects. He believes there is currently no evidence that Apple Intelligence can shorten hardware replacement cycles or increase service revenue. Therefore, investors should be cautious about the potential downside risk stemming from previous overly optimistic market sentiment towards Apple Intelligence.

Conclusion: Apple Faces Multiple Challenges Requiring Proactive Responses

In summary, Kuo's report indicates Apple will face multiple challenges in 2025, including stagnant iPhone sales growth, the underperformance of Apple Intelligence, and persistent decline in the Chinese market. These challenges pose a serious threat to Apple's future development. Apple needs to proactively address these issues with effective strategies to reverse the trend, otherwise its long-term growth prospects will be severely tested. The evidence presented in the report suggests Apple needs to reassess its product, market, and AI strategies to adapt to the evolving market environment and consumer needs. Future direction will largely determine whether Apple can maintain its leading position in the fiercely competitive tech market. The current situation is serious, and whether Apple can successfully meet these challenges warrants continued observation.