That was the big question going into Apple’s quarterly earnings call on Thursday. By the time the call concluded, Apple’s stock price was up more than 6%, and CEO Tim Cook had repeatedly enthused about his “great view” on Apple’s business in China.

But despite Wall Street’s positive reaction to Apple’s results (helped by a massive stock buyback announcement), questions about the iPhone’s standing in China may only have become more complicated in the wake of the latest earnings. The company’s surprisingly better-than-expected results in China, and the disparity from what several prominent independent research firms had predicted, reveals a disconnect involving one of the most important pillars of the $2.8 trillion company’s business.

Greater China, which includes mainland China, Hong Kong, and Taiwan, is Apple’s third largest region by revenue, representing 19% of Apple’s total sales during the 2023 fiscal year. 

As tensions between the U.S. and China have increased over the past year, demand for American tech products, including iPhones, has fallen among Chinese consumers. Meanwhile, Chinese tech companies like Huawei are making headway on new smartphones and guzzling the market share Apple is losing. The Chinese government has supported this shift toward domestic technology, last year ordering state officials to stop using non-Chinese phones for work. 

Apple’s revenue in the region has declined on a year-over-year basis in five out of the six most recent quarters, and all signs pointed to more pain in the first three months of 2024. 

In the beginning of the year, Apple’s weekly shipments into China declined by 30% to 40% year over year on a weekly basis, according to Ming-Chi Kuo, a renowned TF International Securities analyst known for his accurate insights into Apple’s business. 

“This downward trend is expected to continue,” he wrote in a January blog post. “Apple may have the most significant decline among the major global mobile phone brands in 2024,” he said.

For the quarter, market research firm Counterpoint estimated Apple’s iPhone sales in China were down 19% from the same time last year. 

It turns out that Apple sales in Greater China did indeed decline in the first three months of the year, coming in 8% below levels a year ago. But that decline was far less severe than Wall Street had been bracing for: Compared with the 13% decline in the fourth quarter of 2023, it was actually an improvement. Sales of iPhone, Apple said, actually increased in mainland China during the quarter (though it didn’t specify if the increase was from the previous quarter, or the previous year).

The surprise was enough to prompt multiple questions from analysts during their call with Apple executives. As one analyst on the call bluntly put it: “What are we missing?” 

To that, CEO Tim Cook wouldn’t give an answer, saying he couldn’t address numbers that Apple didn’t produce. “I can only address what our results are,” Cook said. “I can’t bridge to numbers we didn’t come up with.”

Cook said that the iPhone 15 and 15 Pro Max were the two bestselling phones in “urban China” during the quarter, and he recounted the “warm and energetic” reception he received from consumers in Shanghai when he visited and opened a new store in March. 

What’s really going on inside China

It isn’t immediately clear why Apple’s numbers aren’t more closely aligned with the independent research.

Between quarterly earnings reports, Wall Street analysts rely on independently collected data to gauge how a company’s business is faring. These research reports can include anything from supply-chain information to retail store inventory levels, gleaned from both official sources and leaks from insider contacts. While this data can’t tell the full story, it does give analysts a strong impression of what’s going on.

But the disparity between the third-party research reports and Apple’s report in Q1 left many investors and observers scratching their heads.

Apple reports revenue for China, while many industry analysts look at unit shipments, creating some room for divergence if prices change. Cook’s comments about the newer iPhone 15 models, including the 15 Pro Max, being top sellers in urban China suggests that the company may have benefited from higher prices even if overall units were down more sharply.

Will Wong, an analyst at IDC, which had projected a 10% unit decline in China iPhone sales, told Bloomberg that different methods of measuring pricing may have prompted some of the confusion.  

“IDC counted the street prices (i.e., the prices that consumers paid), while Apple is likely using another price level, such as factory price, in its financial report,” Wong was quoted as saying.

Following the earnings call with Apple executives, many of Wall Street’s equity research analysts appear to have sided with Apple’s version of the story. Analysts have largely revised their models to reflect a more favorable China business, according to their research notes published on Friday. Bank of America analysts called the China concerns “unfounded,” while analysts from investment firm Wedbush said they expect to see China sales turn a corner by June and show growth by September. 

​​“The worst is now behind Apple in China,” Wedbush analysts wrote. 

Apple’s overall revenue declined 4.3% to $90.8 billion during the quarter, which is better than analysts expected. Apple also beat earnings per share predictions, meeting last year’s number at $1.53. Executives announced its largest stock buyback of $110 billion, an increase from the $80 billion to $90 billion repurchase Apple has offered in recent years. 

But some analysts remain cautious. While the independent research reports may not have aligned with Apple’s results in China, UBS analysts noted that the iPhone clearly appears to have lost market share in China. 

“Peak China units of 50M in FY 22 is also not likely to be repeated given 300-500 [basis points] of share loss in that region,” UBS analyst David Vogt wrote in a note to investors on Friday, stressing that Apple is not “in the clear yet.” 

UBS, which has a neutral rating on Apple, doesn’t expect the company to sell many more iPhone 16 devices, which are expected to premiere in September, than iPhone 15s. This sentiment is partly because of lost market share in China, the firm said. 

And even as Cook talked up China during Thursday’s call, the company also appeared to be laying the groundwork for a future where China was less vital to its business. CFO Luca Maestri noted that other “emerging markets” like India, Saudi Arabia, Mexico, Turkey, and Indonesia were getting larger and in aggregate nearing the size of China.

“The gap as you compare it to China is reducing, and hopefully that trajectory continues for a long time,” Maestri said.