Apple is grappling with diminishing iPhone sales and lackluster reception for its AI-powered features, signaling growing challenges in key markets like China.
Analyst Ming-Chi Kuo, widely regarded as one of the most reliable analysts when it comes to predicting Apple’s future plans and products, has detailed how declining demand, regional obstacles, and limited consumer interest in Apple Intelligence are shaping a cautious outlook for 2025.
As the company prepares for the release of its next-generation devices, questions remain about its ability to adapt to an increasingly competitive landscape.
AI Adoption Falls Short of Expectations
In late 2024, Apple unveiled its on-device AI offering, Apple Intelligence, with promises of enhanced functionality while safeguarding user privacy. Unlike competitors such as OpenAI’s ChatGPT and Google’s Gemini, which rely on cloud-based processing, Apple Intelligence performs computations mainly locally, reducing reliance on external servers.
This approach underscores Apple’s commitment to privacy, but it has not translated into widespread consumer enthusiasm.
According to Ming-Chi Kuo, “There is no evidence that Apple Intelligence has boosted iPhone replacement demand.” Supply chain surveys reveal that many users view the AI capabilities as underwhelming compared to the advanced functionality offered by ChatGPT and Gemini.
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Both platforms have rapidly evolved, drawing millions of users with applications ranging from conversational AI to creative content generation. Apple’s AI, in contrast, appears to have lagged behind, limiting its appeal.
Adding to the skepticism, Apple CEO Tim Cook addressed speculation about monetizing Apple Intelligence during an interview with Wired. “Charging for Apple Intelligence has never been discussed internally,” Cook stated, pushing back against overly optimistic projections about its potential as a revenue driver.
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Declining Market Share in China
China, historically one of Apple’s largest markets, has emerged as a focal point of its struggles. In December 2024, iPhone shipments in China fell by 10–12% year-over-year, even as the overall smartphone market remained steady.
The first half of 2025 is unlikely to offer relief, with Kuo projecting an additional 6% decline in iPhone sales during this period. These figures highlight Apple’s difficulty in retaining its competitive edge in a market increasingly dominated by domestic brands offering high-quality devices at lower prices.
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Further complicating matters, Apple’s upcoming iPhone models—set to launch in late 2025—may deepen these challenges. Two of the devices are expected to rely exclusively on eSIM technology, which eliminates the need for physical SIM cards by enabling digital carrier switching.
While eSIM adoption is growing in some regions, it remains uncommon in China, where carriers and consumers predominantly use physical SIM cards. Kuo noted, “These two models could face shipping momentum challenges unless their design is modified.”
Flat Growth Projections for 2025
Apple’s production plans for 2025 reflect a conservative outlook amid these mounting challenges. Kuo estimates iPhone shipments at approximately 220 million units in 2024, with a slight increase to 225 million units in 2025. These figures fall well below the market consensus of 240 million units or more, signaling muted expectations for growth.
The company’s upcoming ultra-thin iPhone models, including a foldable variant, are unlikely to reverse this trend. While these devices aim to attract niche audiences, Kuo warns that “Although the ultra-thin iPhone may ship in higher volumes than the iPhone Plus, it likely won’t significantly boost iPhone sales overall.”
The combination of high prices and components that offer little improvement in user experience compared to existing models may limit their market impact.
Competitive Pressure From Cloud-Based AI Platforms
Apple Intelligence’s challenges are amplified by the rapid advancements of cloud-based AI competitors. OpenAI’s ChatGPT and Google’s Gemini have set new benchmarks in AI capabilities, offering features like real-time conversational responses, advanced natural language understanding, and creative content tools. These services have seen explosive user growth, positioning them as leaders in the AI space.
In contrast, Apple’s on-device AI remains more limited in functionality. While it emphasizes privacy, a critical differentiator for some users, it lacks the breadth and depth of features that cloud-based platforms provide. This discrepancy raises questions about Apple’s strategy in the increasingly AI-driven technology landscape.
Broader Implications for Apple’s Future
The combination of declining sales in China, lukewarm reception to Apple Intelligence, and design choices that could alienate key markets poses significant challenges for Apple. These trends underscore the complexity of competing in a rapidly evolving industry where consumer preferences are shaped by both technological innovation and regional dynamics.
Apple’s ability to address these challenges will be critical as it navigates 2025. Whether through revising its AI strategy, adapting to market-specific demands like eSIM adoption, or leveraging its reputation for hardware excellence, the company faces critical decisions that could shape its trajectory in the years ahead.