Apple must secure China as it embarks on legal battles in the U.S. and Europe, Wedbush analyst says: ‘Grab the olive branch from Beijing and don’t look back’

There’s troubled waters under the Apple-China bridge. After the company reported weaker sales in the region, its shares dropped 2.9%, wiping $84 billion off its market valuation. In response, CEO Tim Cook doubled down on Apple’s investments in China: He flew to Shanghai last week to be present for its grand opening for a flagship store in Shanghai, and announced plans to launch Apple’s Vision Pro headset in China later this year.

It might take more than a new store to calm the waters. Chinese consumers have been shifting their love from the iPhone to domestic smartphone makers—most notably Shenzhen-based Huawei, whose new high-quality line of Mate 60 smartphones has proved to be fierce competition. Now Apple faces falling sales in the region, its third biggest market—and antitrust actions from the U.S and Europe add salt to the wound.

Dan Ives, a senior equity analyst at Wedbush, told Fortune “the timing is ironic that Cook is in China while the antitrust issues come from both the US and EU.”

“This is a critical time for Apple to grab the olive branch from Beijing and don't look back,” Ives said, adding that “China is key for Apple,” and that the company has struggled to grow there. True enough, Apple’s iPhone sales plummeted 24% in the first six weeks of 2024, according to a Counterpoint Research report. Over that same period, sales for its competitor Huawei surged by 64%.

Cook spent several days in China last week—in part to help open the new store, which is Apple’s 57th store in China and the world’s second largest after the one on Fifth Avenue in New York, but he also met with key suppliers, which, according to a note by Wedbush, “was important with worries around a manufacturing supply chain shift out of China into India, Vietnam, and other countries” over the next few years.

Ives leaned hopeful: “This trip could start to turn around things in China after a turbulent year.”

Turbulent, indeed. Earlier this month, Apple was fined nearly $2 billion by the European Union for anticompetitive music-streaming practices. Apple now faces antitrust actions in the U.S. and Europe—and it’s one of the first to be investigated by the European Union after it passed the Digital Marketing Act, a law implemented in November 2022 that’s aimed at dismantling monopolies and reducing anticompetitive behavior by some of the world’s biggest tech companies.

In America, Apple is also at the center of an antitrust lawsuit, filed by the U.S Department of Justice, which alleges Apple’s control of app distribution and programming interfaces suppress technologies like cloud streaming games and cross-platform messaging apps that could otherwise work equally well across different smartphones. Apple said it will defend the claims.

The new headwinds, in the form of lawsuit probes, add to the pressure Apple was already facing in China before. Its performance in the region—which accounts for about 20% of its sales, according to the Wedbush note—has been slipping for years. Part of it is because the U.S. and China have been reducing their economic reliance on each other, as seen through a 2019 Trump administration order preventing U.S. tech firms from dealing with Huawei less than two weeks after the Chinese smartphone maker unveiled its trademark Mate 60 Pro phone.

In turn, China has invested in its own chips and smartphone parts, while its consumers have used their purchasing power to show solidarity for its domestic smartphone maker. Huawei claimed the second-largest share of the country’s smartphone phone market at 17%, compared to 9% of the share last year, the New York Times reported.

To turn things around, Wedbush analysts said Apple will “need to turn around this headwind into a tailwind heading into the iPhone 16 release this Fall and it all starts with reaffirming Apple's presence in China.”

This story was originally featured on Fortune.com