Apple’s iPhone market in China continues to be a struggle, according to a new research report. The company has lost market share and fallen out of the top five vendors.

But there are two things analysts believe could reverse the trend and lead to fresh success for Apple: AI and foldables.

iPhone loses market share despite stronger sales

Apple’s story in China this year is complicated. On one hand, the company has seen some sales improvements in recent months. As reported in the last quarterly earnings, iPhone sales were trending up.

However, according to a new research report from Canalys, Apple is lagging behind its competition significantly.

In Q2 2024, the smartphone market in Mainland China grew 10% year-over-year. Although iPhone sales benefited from the 618 shopping festival, it was outpaced by Chinese rivals.

Apple slipped out of the top five smartphone vendors in the quarter to take sixth place, and its market share declined by 2% to 14%.

The report explains:

“It is the first quarter in history that domestic vendors dominate all the top five positions,” added Canalys Research Analyst Lucas Zhong. “Chinese vendors’ strategies for high-end products and their deep collaboration with local supply chains are starting to pay off in hardware and software features. HONOR’s latest Magic V3, which leverages GenAI, has significantly enhanced the user experience of foldable devices.

There are two key components identified in this quote that are hurting Apple: AI and foldables.

But these also represent the iPhone’s greatest opportunities for growth.

Apple Intelligence in China

Apple Intelligence is expected to release this fall and bring with it an array of powerful features. However, at launch it will only support US English.

The report states:

The localization of Apple’s Intelligence services in mainland China will be crucial in the next 12 months

Apple says additional languages and territories are coming in the year ahead. Expect to see China prioritized in those localization efforts.

Chinese companies are experiencing such a boom of smartphone sales, according to Canalys, in large part because of their AI innovations. Apple will want to join that boom as soon as it possibly can.

The foldable iPhone gets real

Recent reporting indicates the long-rumored foldable iPhone is finally getting real. The device is expected to launch in 2026.

Reporting on the foldable iPhone has highlighted the proliferation of foldable smartphones in China. Foldables, like AI, is a key market that Apple seems required to enter.

If it doesn’t, the company can expect to see its solid market share continue to slip over time.