Ap­ple faces battle to win over China with pricey iPhones

Its China ri­vals match its fea­tures, beat its prices, dwarf its mar­ket share

The Hamilton Spectator - - Business - Yang Jie in Bei­jing con­trib­uted to this ar­ti­cle. YOKO KUB­OTA AND TRIPP MICKLE

The sig­na­ture fea­tures of Ap­ple Inc.’s new iPhones—big­ger screens and dual-SIM sup­port— speak di­rectly to de­mands in the all-im­por­tant China mar­ket.

Chi­nese ri­vals al­ready of­fer sim­i­lar fea­tures for less money, how­ever. That means the im­prove­ments may help Ap­ple re­tain its mar­ket share in China, but may not be able to win new con­verts to Ap­ple’s ecosys­tem— and that could keep sales flat, an­a­lysts say.

“It’s still hard for Ap­ple to at­tract wider Chi­nese con­sumers from An­droid users,” said Mo Jia, a Shang­hai-based an­a­lyst at mar­ket-re­search firm Canalys, cit­ing “the ex­tremely high price band com­pared to local high-end An­droid prod­ucts.”

The Ap­ple iPhone launch also drew crit­i­cism on Chi­nese so­cial me­dia Thurs­day. Dur­ing the launch an­nounce­ment at Ap­ple head­quar­ters in Cu­per­tino, Calif., a day ear­lier, an im­age of global re­lease dates pro­jected on stage in­cluded Tai­wan and its flag as dis­tinct from China.

Tai­wan has an in­de­pen­dent gov­ern­ment, but China claims the is­land as its own and has pre­vi­ously pushed air­lines, hote­lier Mar­riott In­ter­na­tional Inc. and other com­pa­nies to change on­line ref­er­ences that sug­gest Tai­wan isn’t part of China.

“Ap­ple, what did you mean at the launch event?” the Com­mu­nist Youth League posted on its Weibo so­cial me­dia ac­count. The Com­mu­nist Party tabloid Global Times re­ported on­line that Chi­nese ne­ti­zens are urg­ing Ap­ple to fol­low the one-China prin­ci­ple.

Ap­ple didn’t im­me­di­ately reply to a re­quest for com­ment.

The start­ing price of the new phones by Ap­ple will range from about $950 and $1,400 in China, while a hand­set pro­duced by ri­val Huawei Tech­nolo­gies Co. with a dual-SIM-card fea­ture and sim­i­lar screen size can be found for about $660.

Af­ter back-to-back years of steep sales de­clines, Ap­ple’s China business has bounced back re­cently, help­ing the com­pany hit record prof­its. Rev­enue in the re­gion has risen 16% to $40.53 bil­lion in the three fis­cal

quar­ters ended in June. Greater China ac­counts for about a fifth of its to­tal rev­enue.

Yet its mar­ket share in China has been tread­ing wa­ter. Once the top seller in China, Ap­ple is now the fifth best-sell­ing brand with a 6% mar­ket share in AprilJune, down 1 per­cent­age point from a year ear­lier, data from Canalys showed.

To be sure, that may not mat­ter for Ap­ple’s prof­itabil­ity. As the global smart­phone mar­ket con­tracts, Ap­ple’s fo­cus has shifted from units it ships to higher profit mar­gins. Just main­tain­ing a sim­i­lar shipment scale could help drive Ap­ple’s prof­itabil­ity again, Mr. Jia of Canalys said.

While Ap­ple re­mains a sta­tus sym­bol in China, it has been trail­ing home­grown ri­vals Huawei, BBK Elec­tron­ics Corp.’s Oppo and Vivo brands, and Xiaomi Corp.

In an ef­fort to re­vive its for­tunes in the re­gion, Ap­ple of­fered soft­ware up­dates tai­lored to­ward China in­clud­ing the ad­di­tion of voice dic­ta­tion in the Shang­hai di­alect and sup­port for

QR codes, used widely for mo­bile pay­ments. It last year also named its first ex­ec­u­tive with over­sight of the China business.

With the lat­est mod­els, Ap­ple took a fur­ther step with a Chi­naspe­cific hard­ware up­date, will­ing to stom­ach ex­tra costs with mod­i­fi­ca­tions to the dual-SIM-card fea­ture it is adding to the new hand­sets.

An acro­nym for sub­scriber iden­tity mod­ule, SIMs are mi­crochips that al­low smart­phone users to ac­cess a wire­less net­work. With dual SIM, users can use two phone num­bers on one de­vice.

Out­side of China, the new iPhones fea­ture a tech­nol­ogy that blends a phys­i­cal SIM with an eSIM tech­nol­ogy, a dig­i­tal em­bed­ded SIM that lets wire­less sub­scribers store a sec­ond phone num­ber on the de­vice with­out a sec­ond phys­i­cal SIM card.

But in China, that is a chal­lenge be­cause of reg­u­la­tions that re­quire car­ri­ers and reg­u­la­tors to be able to track the de­vice user’s iden­tity. That would be dif­fi­cult to do with eSIM, which would be em­bed­ded by Ap­ple and

not the car­ri­ers. There­fore, Ap­ple has added trays for those phys­i­cal SIM cards in China alone, fur­ther com­pli­cat­ing a dif­fi­cult sup­ply chain by re­quir­ing ad­di­tional com­po­nents and dif­fer­ent pro­duc­tion pro­cesses.

China is the world’s biggest mar­ket for dual-SIM smart­phones, ac­cord­ing to Canalys. The fea­ture is pop­u­lar among users with two num­bers for business and pri­vate use, or those who use one SIM card for phone calls and an­other for in­ter­net ac­cess. It’s also a ben­e­fit for in­ter­na­tional travel. More than 62 mil­lion Chi­nese va­ca­tioned in other coun­tries last year, twice as many as five years ear­lier.

The dual-SIM fea­ture is at­trac­tive for Chi­nese con­sumers, but noth­ing new, an­a­lysts say. In April-June, only 6.6% of smart­phones sold in China had one SIM card, said Canalys’s Mr. Jia.

Along with dual-SIM slots, Ap­ple on Wed­nes­day in­tro­duced two new mod­els with its largest iPhone screens ever: a 6.5-inch dis­play called iPhone XS Max us­ing ad­vanced, OLED tech­nol­ogy and a lower priced de­vice with a 6.1-inch LCD dis­play, called iPhone XR. It also un­veiled a 5.8-inch OLED screen ver­sion, called the iPhone XS.

The new iPhones’ big­ger screens will meet the taste of Chi­nese con­sumers who are highly re­liant on smart­phones to go on­line to shop, pay for goods, hail cabs, play games or watch pop­u­lar live video stream­ing. In China, 788 mil­lion peo­ple, or 98% of in­ter­net users, go on­line us­ing mo­bile phones, ac­cord­ing to the China In­ter­net Net­work In­for­ma­tion Cen­ter, a gov­ern­ment-af­fil­i­ated agency.

Yet Chi­nese com­peti­tors have al­ready of­fered phones with dis­plays larger than 6 inches. Huawei’s re­cently un­veiled Honor 8X Max’s dis­play size is 7.12 inches.

Chi­nese con­sumers tend to es­pe­cially value new looks of prod­ucts and could be turned off by Ap­ple’s new mod­els that look sim­i­lar to the pre­vi­ous ver­sion, said James Yan, an an­a­lyst at Coun­ter­point Re­search based in Bei­jing.

In China, the iPhone XS Max starts at 9,599 yuan, or about $1,400, while the iPhone XR starts at 6,499 yuan, or about $950— higher than the U.S. price tags of $1,099 and $749 re­spec­tively, partly due to tar­iffs.

By com­par­i­son, one of Huawei’s cur­rent high-end mod­els, the P20 Pro, starts at 4,488 yuan, or about $660. The com­pany is set to un­veil its lat­est prod­ucts next month.

On Chi­nese so­cial me­dia, the cost of the new iPhones was one of the main dis­cus­sion points.

“We are all talk­ing about the high price,” said a user with the name of Kena Shazhou on the mi­croblog Weibo. “How­ever this may ac­tu­ally suit the van­ity of some Chi­nese peo­ple.” An­other com­mented: “Even the low­est price is enough for two good An­droid phones.”

Ap­ple as­sem­bles most of its iPhones in China. While smart­phones have so far evaded U.S. tar­iffs, Ap­ple has said its watch, wire­less head­phones and other goods would be hit by pro­posed U.S. tar­iffs on $200 bil­lion of Chi­nese goods.


While Ap­ple re­mains a sta­tus sym­bol in China, it has been trail­ing home­grown ri­vals.

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