Apple wilts in China as smartphone market heats up
Apple wilts in China as smartphone market heats up
Tech group’s capacity to dazzle local phone shoppers has
hit a low ebb
August 8, 2016
Part of the problem may be short term, according to staff
in the shop. Many Chinese are putting off buying an Apple device until the new
iPhone 7 model comes out in September, says an employee, who adds that a lull
in sales before a big launch is to be expected. “There’s no reason for any
concern; when the new phone comes out sales will pick up,” he says.
Liu Shan, a matronly woman guiding her teenage cousin
around the store, is one of the few seemingly in the shop to buy a phone — but
even she fails to show the sort of devoted Apple fandom that made China the
company’s largest market outside the US.
“She’s just a student,” she says of her youthful charge,
flicking through a display of iPads, “so there’s no need to wait for an iPhone
7. We’re very pragmatic.”
This lack of excitement points to the bigger problem
Apple faces in China. A drop in revenues in the country by a third last quarter
signalled to some that the company’s capacity to dazzle smartphone shoppers has
been diminished amid stiffer competition from cheaper local competitors
producing more technologically advanced devices.
The fall in sales should not have come as a surprise.
Baidu, China’s biggest search engine, used a fall in search queries as a proxy
for foot traffic to Apple stores to correctly predict a 23-34 per cent
year-on-year fall in Apple’s quarterly revenues in China.
Chinese smartphone users are no longer buying into the
hype as they once did. When Apple first launched an iPhone in 2009, the
smartphone was a status symbol for young Chinese middle class consumers.
Apple consolidated its position with the release of
several new phones aimed at the local market, briefly pushing the group to the
top of China’s smartphone market last year.
But Xiang Ligang, an expert on China’s telecommunications
sector, says that Apple now faces a challenge in “keeping itself interesting”
in China, namely that the group was “looking like a trend follower these days”.
Crucially, local rivals have caught up with, and in some
cases exceeded, the sort of technological advances that were once the calling
card of the US tech group.
Rumours suggest that the forthcoming iPhone 7 will have a
dual-lens camera, for example, but by the time it launches in September “it
will look old”, says Mr Xiang.
Many competitors already have dual-lens cameras on their
newer phones, such as Huawei’s P9 launched in April, and Xiaomi’s Redmi Pro.
“The Chinese phonemakers are fast catching up with Apple
in quality and performance, and the consumer mindset is also evolving,” says Mr
Xiang. “Some users will always associate Apple with wealth and taste but, for a
lot of users, sporting a Huawei or Oppo will no longer cause them to lose
face.”
Getting China right is important for Apple; until the
previous quarter, it was the company’s fastest-growing market.
The drop in sales in China has added to Apple’s troubles
as it faces a number of setbacks in the country, from a spurious copyright
infringement lawsuit — alleging a Chinese company owned the iPhone trademark —
to a ban on its iTunes video service.
But devices are core to its success. Apple has ceded
ground to Huawei, as well as to relatively unknown brands such as Oppo and
Vivo, who took the top three slots respectively in market share rankings for
the second quarter, according to Canalys, the research group.
Research by Counterpoint Technology, the market research
firm, shows that Oppo passed Huawei in the second quarter to become the
top-selling smartphone in China, with 22 per cent market share.
Oppo and Vivo, both largely unknown brands abroad, are
both owned by BBK Electronics, based in the southern city of Dongguan.
Apple in the previous quarter came fifth in China,
accounting for a market share of 9 per cent, just ahead of Samsung, according
to Canalys.
China’s smartphone market grew 3 per cent in the last
quarter, according to the group.
Research from Piper Jaffray estimated that mainland China
accounted for 15 per cent of Apple sales in the quarter, adding that part of
the drop can be accounted for by an inventory drawdown and that the numbers
“look worse than they are”.
R&D spike suggests bout of futurology from the
iPhone-maker is more than just talk
Bryan Ma, analyst at IDC, the research firm, says Chinese
consumers quickly tire of last year’s, or even last month’s, model. “One of
Apple’s problems in China is its product refreshes … or lack thereof,” he says.
The fickleness of the savvy Chinese consumer has already
caused problems for rivals, which have also struggled to stay on top of the
China smartphone market. Previous years have seen Samsung and Xiaomi topping
the charts at some point only to fall back.
Crucial to staying relevant is to promise something new.
Mr Ma says the worry for Apple is that supposedly leaked images of the iPhone 7
appear to show little difference from the iPhone 6S.
“Apple needs to make sure that the next product looks
noticeably different from the previous version, as the physical appearance is
critical in market such as China where iPhones are viewed as status symbols”.
Copyright The Financial Times Limited 2016. All rights
reserved.
Comments
Post a Comment