Despite developing more features to woo Chinese consumers, Apple’s market share has stagnated.
Beijing– Apple Inc. (AAPL -9.32%) brought the high-end smartphone to China. Now it is sputtering as homegrown rivals win over consumers by offering similar designs and features at far lower prices.
While Tim Cook, Apple’s chief executive, blamed China’s economic slowdown for weakening sales that hurt its global revenue in the past quarter, the company’s problems run deeper than that. The Cupertino, Calif., tech giant may have underestimated how competitive domestic smartphone makers have become, analysts say.
Once a top-seller in China, Apple has slipped to the fifth-biggest phone seller in that country, trailing four domestic producers that have all been growing in popularity. Despite developing more features targeted at Chinese consumers, Apple’s market share has stagnated.
Chinese rivals including Huawei Technologies Co. and Oppo and Vivo, which are owned by BBK Electronics Corp., have rolled out popular features such as camera functions designed for users to take better selfies.
China’s four biggest domestic smartphone makers have been gobbling up market share while Apple’s iPhone has stagnated.
“The others are a little closer to the pulse of what matters to Chinese consumers,” said Mark Natkin, managing director at Marbridge Consulting in Beijing.
Moreover, Apple’s iOS operating system is proving less “sticky” for Chinese consumers than in other markets because smartphone users spend a large chunk of their phone time inside WeChat , a chat, payments and social-media app from Tencent Holdings Ltd.
Chinese consumers who won’t pay for the status of brandishing the top-priced iPhone model are considered more fickle when it comes to brands, said Mo Jia, a Shanghai-based analyst at market-research firm Canalys. As the economic slowdown pushes consumers to tighten their purse strings, such consumers are generally more inclined to consider cheaper, non-Apple smartphones, Mr. Jia said.
Apple on Wednesday slashed its quarterly revenue forecast for the first time in more than 15 years. In a letter to investors, Mr. Cook said the revenue shortfall stemmed from lower-than-anticipated iPhone sales in Greater China.
The worse-than-expected performance in China adds to pressure on Isabel Ge Mahe, who was appointed in 2017 to oversee the crucial market that accounts for almost 20% of Apple’s global sales. Apple posted sales growth in the Greater China region for five consecutive quarters until the quarter that ended Sept. 29.
Overall smartphone shipment volume in China has been falling for seven consecutive quarters, data from Canalys show. For Apple, its volume for the nine months to the end of September declined 11.8% from the previous year, even as its market share grew 0.2 percentage point to 7.8%.
Apple’s current struggle in China is illustrated by the iPhone XR, one of the three handsets that Apple released last year.
Apple had placed big orders for the iPhone XR to be sold in China before it went on sale last October, anticipating strong demand, a person familiar with the matter said. Now it is grappling with excess inventory, the person said.
The XR—the lowest priced among the three latest models—starts at a still-hefty 6,499 yuan ($945). By comparison, one competing Huawei model, Mate 20, which was also launched last year with the latest chipsets, starts at 3,999 yuan.
Sales of Apple’s more extravagant handset, the iPhone XS Max, with a starting price of 9,599 yuan ($1,400), have been more resilient, according to Mr. Jia of Canalys.
Global smartphone sales have fallen over the past year, reflecting sticker shock over new phone prices and a lack of show-stopping features to persuade consumers to upgrade. Global shipments fell 7% for the three months ended Sept. 30 versus the prior year, the fourth straight quarter of declines, according to Canalys, a market research firm. Meanwhile, China, the world’s largest smartphone market, tumbled even more at 15%, Canalys said.
Apple has taken steps to court Chinese customers—its latest models introduced a dual-SIM support feature popular with the country’s phone users, though most Chinese rivals had already offered that. In the past, Apple has also enabled iPhone owners to use their phone number as Apple ID as many people don’t frequently use email, and offered the iPhone in rose gold color.
In an effort to boost sales, Apple in recent weeks started to offer discounts in China for trade-ins with used phones, according to its website.
Mr. Cook also cited China’s rising trade tensions with the U.S. as a factor affecting China’s economy. The company hasn’t faced significant anti-Apple sentiment; indirectly, some three million people work in China at suppliers as well as outlets that sell Apple goods, Apple has said.
Still, pockets of resistance have emerged.
Following the arrest in Canada last month of the Huawei’s chief financial officer Meng Wanzhou at the behest of U.S. prosecutors investigating sanctions violations, some Chinese companies have openly encouraged their employees to purchase Huawei phones.
Apple has also received some cancellations from Chinese companies for iPhone orders, which are sometimes given out as year-end bonuses, though they haven’t had a major impact on Apple’s business, a person familiar with the matter said.
By Yoko Kubota
Wall Street Journal