The iPhone Fall | What’s Up China

By Wang Fang

Apple has endured trouble in recent days. Chief Executive Officer Tim Cook announced that it would quit disclosing unit sales data for iPhones in fiscal year 2019 and a trade-in program was launched on its Chinese website to encourage customers to buy new iPhones at a discount by selling their old models.

The iPhone was once so sought-after that Chinese consumers had to queue up for purchases or even pay far above retail price. But now the brand is taking extreme measures with incentive policies after entering the Chinese market a decade ago. What is happening with the iPhone?

 

Fading Fad

Due to the unexpected slowing sales of the iPhone in China, Apple, which has always been famous for a lack of discounts, finally loosened up and launched a promotion to win back Chinese consumers.

Months ago, Apple took a rare step of promoting iPhone sales. When clicking the website of Apple China, visitors would immediately see a limited-time special offer for the iPhone on the front page. Now customers can buy an iPhone XR for 4,399 yuan (US$652) or an iPhone XS for 6,599 yuan (US$979) after deducting the trade-in value of their current devices. Both figures are more than 2,000 yuan (US$297) lower than the standard retail prices.

The iPhone also sells on China’s major online shopping platforms. As of January 19, 2019, the iPhone 8 (64G) sold for 3,999 yuan (US$593) on JD.com, 1,100 yuan (US$163) lower than the price charged on the Apple China website. The newly launched iPhone XR is priced about 1,000 yuan (US$148) lower than the official sticker price.

Before the trade-in program was launched, Apple had just released three new products in September 2018: iPhone XS, iPhone XS Max and iPhone XR. According to its previous practices, old models would become discounted only after new versions were released. But the current promotion covers both old and new iPhone products, hinting at weakerthan- anticipated sales in the Chinese market.

Apple’s apparent desperation has been the key evidence of slowing iPhone sales in China. In a letter to investors published on January 2, Cook lowered the company’s revenue forecast for its fiscal first quarter, a move Apple had not made in over a decade.

The company has also run into other troubles in recent days such as a patent lawsuit filed by chip supplier Qualcomm and labor issues in Foxconn’s iPhone factories. In fact, Apple is losing favor with many investors. On January 3, Apple shares plummeted 9.96 percent, wiping out US$74.1 billion of the company’s market value.

Cook blamed the troubled growth of iPhone sales on the economic slowdown in China, weak demand in the Chinese market and ongoing U.S.-China trade tensions.

A report from American investment bank JPMorgan Chase forecast a double-digit drop in iPhone sales in 2019, adding that its sales growth will not recover until 2020 when more 5G smartphones with faster responsiveness are released, pushing users to upgrade their mobile devices.

 

Rational Buying

The iPhone has been considered the flagship for smartphones since it was launched in 2007. However, with the rise of Chinese smartphone brands, more and more local customers favor domestic handsets with lower prices and strong performance.

“I used the iPhone for five years before turning to the Huawei handset in 2018 because the iPhone has become so expensive,” revealed Du Rong, a Beijing resident whose monthly income can barely cover the cost of a new iPhone XS.

A loyal fan of Apple products, Du bought a Mac, an iPad and an Apple Watch for their excellent design, operating system and user experience. She admitted that were it not for the high price, she would still buy a new iPhone.

For Li Wei, the lack of innovation is the main reason he abandoned the new iPhone. Li has paid close attention to all Apple’s product unveilings but was disappointed by the 2018 event. “The iPhones released in the past two years lack any amazing innovation in product design or performance, yet the price has been rising constantly,” he sighed. Li bought a new iPhone X at the end of 2017 for nearly 10,000 yuan (US$1,483). When new models came out in 2018, he didn’t see an obvious improvement so chose not to upgrade.

“As the performance and quality of smartphones improve, the replacement cycle is getting longer,” noted Liu Ruofei, senior analyst at the Digital Economy Industry Research Center of CCID Consulting, a Beijing-based consulting firm affiliated to the China Center for Information Industry Development (CCID Group). “At the same time, the price of high-end smartphones is rising year by year, and the high price deters many people from buying new devices.”

According to zhaopin.com, a major recruitment website in China, the average monthly salary of a Chinese whitecollar worker was 7,850 yuan (US$1,164) in the third quarter of 2018, which means buying a new iPhone will take an entire month’s income.

 

Intense Competition

Today, global smartphone makers face intense competition, and Apple is no exception.

According to a report on the global smartphone market by Couterpoint, a Hong Kong-based industry analysis firm, Huawei overtook Apple to become the world’s second largest smartphone seller in the second quarter of 2018, flanked by the growing global presence of other Chinese brands like Xiaomi, Oppo and Vivo. In the following quarter of the same year, despite global mobile phone sales dropping by 6 percent, Huawei remained in the second place with 46.9 million units shipped and year-on-year growth of 32.9 percent.

The global smartphone market is currently nearing saturation, and competition has become increasingly fierce. Multiple market analysts reported that global smartphone sales fell by 1 to 3 percent in 2018, the first annual sales decline in the sector.

In this context, smartphone makers are looking to the emerging Southeast Asian market. In recent years, major Chinese brands have all ventured into countries like Vietnam, Malaysia, Indonesia and Thailand. The green Oppo logo and blue Vivo logo can be seen everywhere in mobile phone stores in Jakarta, Indonesia. Oppo, Vivo and Xiaomi products are quite popular with Southeast Asian consumers thanks to their good quality and affordable prices.

As technology matures and cost and performance become key factors influencing buying decisions, Apple is losing its competitive edge. Statistics show that Chinese brands Oppo, Vivo and Huawei were among the top five smartphone sellers in Southeast Asia with a total of 29.8 million units shipped, a 20-fold increase compared to 2013.

Xiaomi Chairman Lei Jun declared that seeking technological breakthroughs is the best strategy to survive fierce market competition and declining demand, especially considering the fact that the 5G smartphone has yet to arrive.

 

Copyedited by Tian Yuerong