When it comes to global markets for Apple, Inc., China represents the company’s largest market outside the U.S. But this may be changing, as iPhone sales in China are on the decline. Certainly, tensions between the U.S. and China aren’t helping, but at the same time, Apple is dealing with its own set of issues that are contributing to its decreased popularity. While the $3 trillion company isn’t about to fold, Apple’s reliance on China as a market does pose some concerns.
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In the midst of this drop in iPhone sales in China, Apple faces some increased competitive pressures in the country. Huawei, which has had to bounce back after U.S. sanctions, is posing a formidable threat within China. Its sales have risen significantly during the same period of time when Apple’s fell. This not only reflects a change in consumer preferences but also one that’s technologically based. And many Chinese are choosing their next smartphone based on political and patriotic sentiments as well. These developments among others do not appear to bode well for Apple given Apple’s reliance on China as a market.
“The golden time for Apple in China is over.” – Linda Sui, Senior Director at TechInsights
Apple’s Ups and Downs in China
Apple first made its entrance into China in 2009, and its popularity soared immediately. Apple’s iPhones were not only seen as having the best performance but also as a status symbol among Chinese. People would camp out in tent days before the release of the latest version iPhone. Notably, iPhone sales in China were tremendous and soon represented about a fifth of all Apple’s sales. It’s easy to see why Apple’s reliance on China as a market grew over time as did its dependence on its supply chains. But since 2018, there’s been a gradual shift in the Chinese market for Apple. Other domestic companies are attracting the attention of Chinese consumers including Huawei, Vivo, Oppo, and Xiaomi.
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Typically, iPhone sales in China peak in the early weeks of each year. But this past season, Apple saw a decline of 24% year-over-year in the first six weeks. In contrast, Huawei enjoyed a 64% increase in its YOY revenues during this same period. And Huawei’s market share went from 9% to 17% in the process. While Apple remains the market leader in China, it’s market share has definitely fallen. This has occurred despite its recent release of its iPhone 15, equipped with a titanium frame and programmable action button. It would seem that the iPhone has lost some of its luster. And it also suggests that there should be some reconsideration of Apple’s reliance on China as a major market.
“Five years ago, Apple had really strong branding in China — people would bring tents to wait through the whole night outside the Apple Store for the next product launch. The iPhone 15 launch wasn’t nearly as popular.” – Lucas Zhong, Analyst at Canalys
A Confluence of Factors
The decrease in iPhone sales in China isn’t simply due to a decline in Apple’s quality. But many Chinese consumers do feel Apple’s platform is a bit stale and yearn for something new. This in part explains why many have jumped from Apple to Huawei and its new Mate 60 Pro. Huawei’s latest phone represents a major comeback for the Chinese company. It boasts Huawei’s own operating system as well as a more advanced wireless chip that the company also designed. Plus, it’s less expensive and represents a domestic brand that more and more Chinese prefer. At the same time, the decline in the Chinese economy has resulted in fewer smartphone upgrades. In fact, nearly 60% of all iPhone users have not upgraded in the last 3 years. Apple’s reliance on China consumer upgrades in past years is no longer fueling sales.
A major reason for the shift in attitudes among Chinese shoppers involves ongoing geopolitical tensions. U.S. and Chine trade barriers and technology wars have fueled recent developments. In 2018, the U.S. had Huawei’s CFO arrested in Canada as part of an investigation over consumer privacy threats, it then restricted U.S. tech companies from dealing with Huawei. While the political decisions boosted Apple and iPhone sales in China then, the effects now appear temporary. The moves forced Huawei to invest in its own platforms and operating systems. And it left many Chinese citizens with a bad taste in their mouth for American companies. This is also a big reason why Apple’s reliance on China as a market may be difficult.
“Huawei is our own brand, and because of this political incident [involving Huawei’s CFO’s arrest], I think we Chinese should be united.” – Chi Miaomiao, Chinese consumer
Apple’s Recent Challenges Beyond China
Certainly, there’s reason to be concerned about Apple’s reliance on China moving forward. If iPhone sales continue to decline, then other markets will need to be cultivated. But this isn’t the only happenings undermining Apple’s situation at present. Recently, the EU hit Apple with a whopping $2 billion fine for anticompetitive music streaming practices. And the U.S. Justice Department also recently filed an antitrust suit against Apple related to similar issues. Combined with few new products that’s likely to become mainstream in the near future, Apple continues to rely on its iPhone sales. This is why the decline in iPhone sales in China is a red flag.
Despite this, Apple continues to have 57 Apple stores throughout China. Thus, it’s probably not giving up on this market anytime soon. But stepping back from Apple’s reliance on China may not be a bad thing. And focusing on innovation and research within China is worth considering as well. In fact, this is precisely what CEO Tim Cook has suggested for the coming months for Apple. Is the love affair over between Apple and China? It’s too early to say at this point. But continuing with this analogy, it appears the honeymoon phase has passed.
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