Local suppliers Huawei, Oppo race to release products first with
newer features
By Eva Dou
BEIJING -- Apple has a China problem, and it may only worsen as
Chinese smartphone makers offer better products and appeal to
consumers to buy homegrown hardware.
Sales in Greater China, which includes mainland China, Hong Kong
and Taiwan, fell 33% to $8.8 billion in the quarter ending in June,
compared with 112% growth a year earlier. It was Apple's steepest
regional drop, and helped drag global revenue down 14.6% -- a
second consecutive quarter of decline.
Apple Chief Executive Tim Cook said in an interview that after
taking out currency impacts, sales in mainland China were only down
2% for the quarter. Mr. Cook said he was "very bullish" on China in
the long run.
But Apple is facing growing challenges in China, a key market
contributing a fifth of its revenue. Local rivals including Huawei
Technologies Co., Xiaomi Corp. and Oppo Electronics Corp. are
increasingly moving from the budget phone market to the high-end
segment. Market leader Samsung Electronics Co. has moved to slash
phone prices in China in a bid to claw back lost market share in
the country.
In recent months, Chinese smartphone makers have scrambled to
pre-empt the next iPhone by beating Apple to the punch on features
such as dual-lens cameras and brighter organic light-emitting diode
or OLED screens.
"This quarter will still be a challenge for Apple," said Canalys
analyst Nicole Peng. "Local vendors are very, very strong this
quarter."
A prime example is an event scheduled to take place at China's
national convention center in Beijing, just hours after the iPhone
maker's earnings conference. One of China's most valuable startups,
Xiaomi Corp., plans to launch a new smartphone Wednesday with
advanced features including a dual-lens camera and an OLED screen,
both of which Apple is developing for future iPhones but has yet to
bring to market, according to people familiar with iPhone
development plans.
Xiaomi has launched a patriotic ad campaign to accompany the
phone launch, with posters proclaiming "Made-in-China Smartphones"
in bold red characters.
Xiaomi isn't even Apple's biggest problem in China. The
smartphone startup's China sales have been eclipsed this year by
Huawei and Oppo, which have both launched sleek high-end
smartphones in recent months aimed at taking on the iPhone.
Huawei's P9 sports a dual-lens camera and a slimmer profile than
the iPhone 6s, while Oppo's R9 touts the fastest battery charging
on the market. Both devices come in luxury colors: gold and rose
gold.
Huawei said Tuesday that it shipped 60.6 million smartphones in
the six months through June, up 25% from a year earlier. Apple said
it sold 40.4 million iPhones during its quarter, down 15% from a
year earlier.
"Huawei and Oppo are recognized as brands as good as Apple,"
said C.K. Lu, a smartphone analyst at Gartner. "Or not quite as
good as Apple, but people don't feel less superior using them."
Apple's China smartphone market share slid to 9% in the second
quarter from 12% in the first quarter, landing it in fifth place
behind Huawei, Oppo, Vivo and Xiaomi, according to Canalys. The
cheaper iPhone SE has done little to boost Apple's sales in China,
due to strong domestic alternatives for price-sensitive consumers
and as more brand-conscious buyers are likely to wait for the next
flagship, the research firm said.
Apple is also facing geopolitical and regulatory challenges in
China. Chinese social media circulated reports this month of
consumers smashing their iPhones in anti-U.S. protests after China
lost a territorial ruling in the South China Sea. China's official
Xinhua news service urged calm last week, saying that crushing
iPhones was "really not the right method to express patriotic
sentiments."
Analysts say such actions will likely have a limited impact on
Apple's sales. But they do come amid other political challenges for
Apple, such as Beijing's recent efforts to flex its regulatory
might, resulting in the shutdown of Apple's mobile book and movie
services in China.
China's growing focus on cybersecurity has also damped sales for
iPhones and other foreign gadgets, especially among government
buyers. Chinese brands such as Gionee have seen this as an
opportunity to win security-conscious local buyers. Gionee on
Tuesday launched a smartphone running a chip that is encrypted and
designed by a Chinese chip maker.
IDC China Managing Director Kitty Fok said part of Apple's
recent sales decline in China was due to consumers awaiting the
next iPhone, and the true test will be whether Apple can return
China sales to year-over-year growth after the launch of its new
models, expected in September.
"Apple has very loyal users," she said. "Once you are an Apple
user, you usually stay an Apple user."
Meanwhile, it was a different story in India, where iPhone sales
rose 51% in the past three quarters compared with a year earlier,
Mr. Cook said on the call.
India accounts for a small part of Apple's business, but it
represents a huge engine for potential growth. It is set to become
the world's second-largest smartphone market behind China, with
consumers increasingly upgrading from basic feature phones to
smartphones, though most sold are much cheaper than Apple's
models.
"India is now one of our fastest growing markets," Mr. Cook
said.
--Daisuke Wakabayashi in San Francisco and Newley Purnell in New
Delhi contributed to this article.
Write to Eva Dou at eva.dou@wsj.com
(END) Dow Jones Newswires
July 28, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Aug 2024 to Sep 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Sep 2023 to Sep 2024