Apple loses China price battle, but will win war
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Robyn Mak
HONG KONG, Aug 12 (Reuters Breakingviews) -Apple AAPL.O should have no trouble overcoming recent setbacks in Greater China. The iPhone maker ceded ground to local rivals in what boss Tim Cook calls “the most competitive market in the world.” Distinct advantages, however, will help revitalize the $3 trillion company’s resilience.
For four consecutive quarters, Apple’s sales in the region, which includes Hong Kong and Taiwan, have fallen year-on-year. And in a first, domestic brands held all five top spots for quarterly smartphone shipments, according to research outfit Canalys. Apple's share in a market that accounted for almost a fifth of its roughly $380 billion in net sales last fiscal year dropped to 14% from 16% during the same span in 2023.
The gnawing fear is that this could mark the beginning of an end, like those met by many tech companies before Apple. Since bringing the iPhone to China in 2009, Apple has navigated tricky political conditions, changing consumer preferences and fierce competition from homegrown copycats. Starbucks SBUX.O, by comparison, has been overtaken in both revenue and store count by a post-scandal Luckin Coffee LC0Ay.MU.
Apple's troubles are probably temporary, though. The recent surge by Huawei and others was largely powered by aggressive promotions for China’s "6.18" online shopping festival. Apple, too, slashed prices, by more than 20% for some older models. It has eased off those discounts, Jefferies analysts reckon, even as Vivo, Oppo and others keep pushing theirs.
There is evidence that Apple's tactics are bearing fruit. Cook flagged that, excluding the impact of a weak yuan and strong dollar, Greater China revenue fell less than 3% in the latest three-month span, slower than in previous quarters. Monthly government data on foreign-branded phones also indicates that shipments surged by more than 40% in May and 10% in June, a sign that iPhone sales are growing again.
More importantly, Apple’s profitability in China excels. Its operating income margin in the region tracks to surpass 40% this year, compared to the 31% anticipated company-wide, per forecasts gathered on Visible Alpha. Xiaomi 1810.HK is only expected to hit 4%.
All this bodes well for the upcoming rollout of the iPhone 16, with fresh artificial intelligence features. Huawei, which staged a comeback to the handset market last year following U.S. sanctions, plans to release its latest flagship device by the end of the year. Even with financial support from Beijing, however, it’s struggling to develop enough cutting-edge chips in-house. Apple will lose the occasional battle, but it stands to win the China smartphone war.
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CONTEXT NEWS
Apple on Aug. 1 reported revenue of about $86 billion in the quarter ended June 29, an increase of 5% from a year earlier.
In China, Apple's third-largest market, sales declined 6.5%, to less than $15 billion, from the same period in 2023.
Chief Executive Tim Cook said Greater China sales fell less than 3% excluding foreign exchange effects, and he added that the number of Apple devices in the region set a record during the quarter.
In May, Apple offered discounts of up to 2,300 yuan ($317) on selected iPhone models in China to compete with cheaper rivals.
Graphic: China will remain a vital market for Apple https://reut.rs/4fDFQqH
Editing by Jeffrey Goldfarb and Ujjaini Dutta
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