Apple diversification hits Henan’s handset exports
IPhone maker maintains dominance in China’s high-end handset segment but local competitors such as Huawei and Honor are fast catching up
Henan province, home to the world’s largest iPhone manufacturing complex, reported a 60 per cent year-on-year drop in smartphone exports in the first quarter, showing the impact of Apple’s moves to diversify production outside the mainland.
According to data released by the customs authority in the provincial capital of Zhengzhou, Henan’s smartphone exports totalled 6.65 million units in the quarter, down by 60.1 per cent from the year before. The data did not provide a breakdown of the handset exports by brand.
Henan last year exported 57.6 million smartphones, down by 14.5 per cent from 2022, as production resumed across all handset assembly facilities in Zhengzhou after Covid-19 control measures were lifted.
Those figures reflect a broad push by Apple’s suppliers, including primary iPhone assembler Foxconn Technology Group, to expand their manufacturing supply chain in markets such as Vietnam and India, the world’s most populous nation.
India has been the world’s second-largest smartphone market since the third quarter of 2017, according to data from research firm Canalys.
Foxconn, formally known as Hon Hai Precision Industry, stepped up its diversification efforts last year after it struggled to keep up with production targets in late 2022 after it was hit by an exodus of workers, who fled over fears of coronavirus transmission, followed by violent protests over employee allowances.
In the aftermath of that fiasco in Zhengzhou, a top Henan official went on a charm offensive in February last year to convince Foxconn chairman and chief executive Liu Young-way to keep the Taiwanese firm’s local operations and investment in the province.
Foxconn is the single largest importer and exporter in the province, according to a report by local newspaper Henan Daily.
Lou Yangsheng, the party secretary in Henan, assured Liu that the government would provide comprehensive services to its local operations, showing the mainland’s efforts to preserve its major role in Apple’s manufacturing supply chain.
Foxconn last December won approval to invest at least US$1 billion more in a plant it is building in India that will make Apple products, which marks a major ramp-up in its goal to build a vast production hub beyond China.
The world’s biggest electronics contract manufacturer will spend that amount on top of the US$1.6 billion it earlier set aside for the 121-hectare site close to Bengaluru’s airport, according to a Bloomberg report that cited people familiar with the matter.
India’s iPhone exports have been growing significantly and are set to nearly double to US$12.1 billion in Apple’s current financial year from US$6.27 billion a year earlier, according to data from consultancy Trade Vision.
Indian salt-to-steel conglomerate Tata Group has just made its debut on Apple’s latest supplier list, which came after its acquisition of Taiwanese firm Wistron Corp’s factory in southern India last year.
Tata has also been exploring a takeover of Taiwanese electronics contract manufacturer Pegatron’s iPhone assembly operations in India as soon as next month, according to a Bloomberg report, citing sources.
Apple also plans to raise its investments in Vietnam. Chief executive Tim Cook last week pledged to “increase spending on suppliers” in the country, adding such expenditure had reached nearly 400 trillion dong (HK$123 billion) since 2019.
Apple suppliers including Foxconn, Luxshare Precision Industry and Goertek have operations in Vietnam. Still, the US tech giant sees the mainland as its prime manufacturing base.
The company added eight suppliers and removed four contractors from the country in its past financial year to September 30, the first time since 2021 it had introduced more mainland production partners than it cut.
“There’s no supply chain in the world that’s more critical to us than China,” Cook told state media China Daily last month.
Apple’s dominance in China’s high-end smartphone market is being challenged by local rivals, including US-sanctioned Huawei Technologies, according to new data from industry consultancy IDC.
While smartphone shipments in China rose by 6.5 per cent to 69.3 million devices in the first quarter, Apple shipped 10.8 million iPhones, down from 14.7 million in the fourth quarter of last year, IDC data showed.
The US tech giant, which was the top smartphone vendor in the last quarter of 2023, saw its market share in the past quarter fall to 15.6 per cent from 17.8 per cent a year earlier. It lagged Chinese manufacturers Honor and Huawei, which grabbed 17.1 per cent and 17 per cent of the market, respectively.
The IDC data is in line with findings published earlier this week by another research firm, Counterpoint, which also showed Apple’s market share shrinking, although Counterpoint placed Vivo and Honor in second and third places, respectively.
“Apple faces increasing competition despite its strategy to prop up sales by cutting prices,” said Antonio Wang, vicepresident of IDC China.
Foldable phones would be key for Android smartphone brands seeking to compete with the iPhone in the high-end market, Wang said. Handsets with such designs and artificial intelligence (AI) features were poised to boost smartphone sales in China, with total shipments this year rising by 3.1 per cent to 279 million, he added.
Unlike some of its rivals, Apple has yet to integrate its smartphones with generative AI features. The Cupertino, California-based company is expected to unveil its AI strategy during its annual developers’ conference in June.
Apple is also exploring a tie-up with web search and AI giant Baidu to install the latter’s Ernie chatbot on iPhones sold in China, according to a report by The Wall Street Journal last month.
Despite losing out to domestic brands in China’s overall smartphone market, Apple still topped the premium segment, which consists of handsets priced at more than US$600. But its market share in the segment had dropped to 58 per cent in the March quarter from 70 per cent a year ago, said Arthur Guo, a senior research analyst at IDC China.
The decline can be attributed to economic woes, which prompted consumers to consider budget phones, as well as competition from Huawei, its Honor spin-off and other domestic manufacturers.
Huawei’s comeback has disrupted the market equilibrium … [It still faces] bottlenecks ANTONIO WANG, IDC CHINA
Huawei’s share in the highend market, meanwhile, jumped to 20 per cent from 12 per cent, thanks mainly to strong demand for its 5G-enabled Mate 60 series, Guo said. Honor’s share also expanded steadily to reach 9 per cent.
“Huawei’s comeback has disrupted the market equilibrium,” Wang said, adding the company still faced “supply-chain bottlenecks”, which could impede its growth.
Globally, smartphone makers shipped a total of 289 million units in the first quarter, marking a 7.8 per cent year-on-year rebound and continuing a growth trajectory for the third consecutive quarter, according to IDC.