Ap­ple draws the short end of the stick

In price and value, Chi­nese phone mak­ers are out­pac­ing iphones in much of the rest of the world, but not in the US

Sunday Tribune - - BUSINESS REPORT - RAY­MOND ZHONG | The New York Times News Ser­vice

TO MOST West­ern con­sumers, the names are un­fa­mil­iar, maybe a lit­tle hard to pro­nounce: Huawei, Xiaomi, Oppo, Vivo.

They are China’s big­gest smart­phone brands. Around the world – al­though not in the US – they are mak­ing the hand­set busi­ness bru­tally com­pet­i­tive. This week, af­ter Ap­ple warned of dis­ap­point­ing iphone sales in China, in­dus­try ob­servers said de­vices from the Chi­nese brands were a ma­jor cul­prit.

As the phone mar­ket in China reaches sat­u­ra­tion and sales shrink, the coun­try’s hard­ware mak­ers are push­ing hard and in­creas­ingly win­ning fans, in places like France, Ger­many, In­dia and South­east Asia, where con­sumers find that the phones can do just about every­thing an iphone can do at a frac­tion of the cost.

Ap­ple sits com­fort­ably atop the mar­ket in many coun­tries, in­clud­ing China, for the high­est-end hand­sets. But com­pa­nies like Huawei have started to do else­where what they have done in China, com­pet­ing with the iphone on ex­pe­ri­ence and value and lur­ing cus­tomers with price com­par­isons that make them re­think buy­ing Ap­ple’s sig­na­ture prod­uct.

The cost dif­fer­ence is no­table: In China, an iphone XR starts at around $950 (R13 247), while Huawei’s topend hand­sets start at about $600, and Xiaomi’s com­pa­ra­ble mod­els start at even less. The iphone XS starts at around $1 250.

Com­pa­nies like Huawei and Oppo have made im­prove­ments in fea­tures and over­all qual­ity that are en­tic­ing many wealthy Chi­nese peo­ple, said Mo Jia, an an­a­lyst in Shanghai for the tech­nol­ogy re­search firm Canalys.

Chi­nese brands’ ag­gres­sive mar­ket­ing and sales cam­paigns in Europe in­di­cate that the com­pa­nies be­lieve con­sumers there who have tra­di­tion­ally used iphones will do the same thing.

“Maybe it won’t hap­pen this year or next year,” Jia said. “But Huawei is go­ing in that di­rec­tion.”

In its pur­suit of the Euro­pean mar­ket, Huawei, which has its head­quar­ters in Shen­zhen and is now the world’s No 2 seller of smart­phones, has gone far be­yond the phone store. Huawei has spon­sored sum­mer con­certs in Greece, teamed up with Lithua­nia’s bas­ket­ball fed­er­a­tion and backed a “China Fes­ti­val” in Cologne, Ger­many. Vivo spon­sored last year’s World Cup in Rus­sia.

Xiaomi, which is based in Bei­jing and was founded in 2010, seem­ingly came out of nowhere to be­come the No 4 mo­bile brand in Europe early last year, ac­cord­ing to Canalys. The gad­get maker has also be­come the top seller of phones in In­dia, in part by open­ing hun­dreds of stores in ru­ral ar­eas.

Chi­nese phone mak­ers have not made sim­i­lar in­roads in the US. The US gov­ern­ment has worked for years to stymie the sale of Huawei’s smart­phones and telecom-net­work equip­ment, af­ter a con­gres­sional in­quiry in 2012 deemed Huawei a po­ten­tial ve­hi­cle for cy­ber­spy­ing by the Chi­nese gov­ern­ment. The Trump ad­min­is­tra­tion has urged West­ern al­lies to do the same.

Se­cu­rity con­cerns have not dis­suaded some buy­ers across the At­lantic. Gian­nis Vas­silopou­los, a col­lege stu­dent in Athens, said he had been bom­barded by Huawei ads dur­ing his re­cent trav­els around Europe. He said he had bought a Huawei phone be­cause the brand felt more fa­mil­iar, more Euro­pean even.

Ap­ple still has a hold on con­sumers in many places. An­nounc­ing the sales slump in China this week, the com­pany’s chief ex­ec­u­tive, Tim Cook, said Ap­ple ex­pected to set rev­enue records in wealth­ier coun­tries like Ger­many, Italy, the Nether­lands, South Korea and Spain and in some emerg­ing mar­kets like Malaysia, Mex­ico, Poland and Viet­nam.

In China, though, Ap­ple’s mar­ket share has been de­clin­ing, and the com­pany is cling­ing to the No 5 spot in smart­phone ship­ments, ac­cord­ing to the mar­ket re­search firm Coun­ter­point. An Ap­ple spokesper­son de­clined to com­ment.

China be­came the world’s largest smart­phone mar­ket over the past decade as ris­ing in­comes co­in­cided with an ex­plo­sion in mo­bile tech­nol­ogy.

Peo­ple in China rely on hand­sets in an all-en­com­pass­ing way, us­ing them to rent bikes, sign into gyms and pay restau­rant bills. The mar­ket is in­creas­ingly sat­u­rated, and there are fewer peo­ple in China who do not have an ad­vanced de­vice.

But there are also new eco­nomic rea­sons to buy lo­cally made goods: con­sumers who are re­plac­ing or look­ing to up­grade are di­alling back in light of China’s slow­down.

To­day main­land China’s top smart­phone seller is Huawei, whose hand­set line in­cludes midrange de­vices and higher-end mod­els with all the lat­est fea­tures. Vivo and Oppo, brands owned by the same Chi­nese par­ent com­pany, are next. Then comes Xiaomi, whose phones, smart home de­vices and even sneak­ers com­mand a pas­sion­ate fan base. Sam­sung of South Korea, which sells more smart­phones glob­ally than any other brand, has only around 1 per­cent of the mar­ket in China.

Feng Yin, a 32-year-old en­gi­neer, has an iphone now, but he is con­sid­er­ing switch­ing to a Huawei de­vice.

“In the past few years, the tech­nol­ogy in Ap­ple’s phones has not had any big break­throughs, while the tech­nol­ogy in do­mes­tic phones has got­ten bet­ter and bet­ter,” he said, while brows­ing in a Huawei store in Shanghai on Fri­day. “The dif­fer­ence is get­ting smaller.”

On Fri­day, Xian Longfei, a restau­rant chef, and a friend were at an Oppo store in Shanghai. When it comes to cell­phone brands, Xian, 35, has tried many: Nokia, Mo­torola, Sam­sung and three iphone mod­els. He switched to an Oppo a few months ago.

He ac­knowl­edges Ap­ple’s de­vices still seem bet­ter. But many of his friends in Shanghai and peo­ple in his home town are Oppo users. And the price, around $400 on sale, was hard to beat.

An­other fac­tor work­ing against Ap­ple in China is the dom­i­nance of Wechat, a mes­sag­ing, so­cial me­dia and pay­ments app used by more than 1bil­lion peo­ple. It works on Google’s An­droid op­er­at­ing sys­tem as well as Ap­ple’s, mak­ing a phone’s soft­ware less of a dif­fer­en­ti­at­ing fac­tor.

“Why would peo­ple pay such a high price for an iphone,” asked Ki­ran­jeet Kaur, an an­a­lyst for the in­dus­try re­search firm IDC, “if, from a hard­ware per­spec­tive, there isn’t much of an up­grade from Huawei and, from a plat­form per­spec­tive, there’s noth­ing to lock peo­ple in?

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