The iPhone maker’s troubles in its second largest market run far deeper than cheap competition and the country’s economic slowdown

(From Caixin Online)

By staff reporters Wang Xiaoqing, Qin Min and Zhang Erchi

Apple Inc. is shifting gears and promoting new apps and services to rev up growth in China amid a slump in sales for its expensive devices as local brands nibble at its market share.

For many Chinese consumers, owning an Apple device was synonymous with being wealthy and fashionable, and in recent years many lined up overnight to grab new models as soon as they were released. This voracious appetite for Apple products made the Greater China region, including Hong Kong and Taiwan, the second largest market for the tech company, after North America. Over 27 percent of its revenue in the last quarter of 2015 came from China, company data showed.

But this dizzying growth ride has hit a bump on the road as local firms catch up. Domestic competitors, with lower-priced models offering comparable features, are eating into Apple’s market share. The share of iPhone’s in the country’s mobile handset market declined to less than 13 percent in the first quarter of 2016 from 16 percent in the same period in 2015, Data from U.S.-based market analysis institute International Data Corporation showed. Meanwhile, local brands like Huawei, Oppo and Vivo made steady gains. Huawei’s share went up from 11 percent to16 percent in the first quarter of 2016, while the figures for Oppo and Vivo, two low-end smartphones, more than doubled.

Apple’s revenue in the country has also slumped. Earnings from the Chinese market tumbled 26 percent to US$ 12.49 billion in the second quarter for 2016 fiscal year, from December 27 to March 26, compared to a 71 percent growth in the same period in 2015, the company’s latest financial report showed. Falling sales in China was blamed for more than half the decline in Apple’s global revenue in March, when the tech giant experienced its first quarterly drop in 13 years.

The company is shifting its focus to tap into new areas of growth like online payment, apps and services, said Apple’s CEO Tim Cook during his visit to Beijing on March 16. Cook also announced plans to invest US$ 1 billion in Chinese ride-hailing service Didi Chuxing, as part of this plan to steer away from relying on devise sales for growth.

“China’s smartphone penetration rate has exceeded 90 percent,” said Liu Ruofei, an analyst at Beijing-based CCID Consulting Co. Ltd. “As product quality improves, devices are more durable and therefore users are slow to upgrade to a new model, resulting in weaker demand.” Read more

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