BEIJING: Sales of Apple's iPhone 5 surpassed 2m units in China during the device's first three days since launch, but the company still faces major challenges in the world's most populous nation.

"Customer response to iPhone 5 in China has been incredible, setting a new record with the best first weekend sales ever in China," Tim Cook, Apple's chief executive, said in a statement.

"China is a very important market for us and customers there cannot wait to get their hands on Apple products."

Across the fiscal year ending in September, Apple drew $23.8bn from China, up by over $10bn year on year. The iPhone posted an increase of 38% in the the firm's last reporting quarter, with the iPhone 5 expected to harden demand further.

However, figures from Enfodesk, the insights group, showed that Apple's share of the smartphone market stood at 4.2% in China by the close of the third quarter of 2012, versus 23.3% a year earlier.

"[Apple] is losing some steam as it's no longer leading the innovation and the competition is closing in quickly and sometimes are ahead of Apple in hardware specs," Sandy Shen, an analyst at Gartner, the research firm, told Bloomberg.

"We've observed some serial iPhone users, people that have used several iPhone models, start switching to Android devices, indicating the company is losing some of its loyal users."

Indeed, Google's Android operating system has seen its share improve from 58.2% to 90.1% in this period, buoyed by the launch of popular handsets by partners such as Samsung and Lenovo.

"Apple is still a very popular product but it's not breaking massive records like it would have two years ago," said Shaun Rein, managing director of the China Market Research Group.

"Apple is losing its lustre. It's not the prestige status symbol it once was, and it's not the market leader any more for high-end smart phones."

IDC, another research provider, stated that over 60m smartphones were shipped in China during the third quarter, with Apple taking sixth place among manufacturers, with less than 10% of the total.

Although the introduction of the iPhone was expected to yield a "rebound", Teck Zhung Wong, an analyst at IDC, argued Apple's rare decision to release its sales results sent a mixed signal.

"Why are they saying this now, when they didn't say this for the iPhone 4s or iPhone 4? Maybe they want to keep the brand alive," he told PC World.

Data sourced from Apple, Financial Times, Bloomberg, PC World; additional content by Warc staff