Low-Cost Devices Fuel China's Smartphone Market as iPhone Sales Dip

[MacRumors]

In China, low-cost smartphones have brought an overall uptick in sales in the second quarter of 2016, while high-end devices -- from companies like Apple and Samsung -- continue to face declining sales numbers in the country (via DigiTimes). Local vendors in China are said to be "focused on promoting entry-level and mid-range 4G models," instead of trying to convince the Chinese public that Apple or Samsung's smartphones are worth the higher price points.

Specifically, smartphone shipments totaled 149 million units in Q2 2016, increasing 2.7 percent from Q1 2016 and 14.3 percent from the year-ago quarter. This surge comes from China's top-selling smartphone companies (in order of smartphone market share in China): Huawei (14 percent), Oppo (12.7 percent), Vivo (11.2 percent), and Xiaomi (10.4 percent). Apple comes in fifth place, "with its market share falling into a single-digit range," although the specific number wasn't disclosed.

Sales of high-end models from Apple and Samsung Electronics continued to suffer declines in the second quarter as local smartphone vendors focused on promoting entry-level and mid-range 4G models capitalizing on subsidies offered by the top-three telecom operators, Digitimes Research noted.

The double-digit shipment growth rates enjoyed by China-based smartphone vendors in the first two quarters of 2016 were higher than the growth rates of smartphones shipped to consumers from retail channel operators, resulting in an increasing pile-up of inventories at channels.

As it was reported earlier in the summer, low-cost devices that are available to a wide range of users who have yet to purchase a smartphone are helping to contribute to an overall growth in the worldwide market. Apple still faces some issues in the Greater China market, reporting an 11 percent revenue drop in mainland China in April, in the same earnings call that confirmed the company's first year-over-year revenue decline since 2003.

In the same call, CEO Tim Cook remained "optimistic" about Apple's presence in China, saying that "China is not as weak as has been talked about. We may not have the wind at our backs that we once did, but it's more stable than the common view of it." Despite some hindrances placed on Apple services like iTunes and iBooks in the country, not to mention Apple's occasional scuffle with Chinese regulators, China remains Apple's third-most profitable market behind the United States and Europe.

Article Link: Low-Cost Devices Fuel China's Smartphone Market as iPhone Sales Dip

 

[Scottsoapbox]

The problem is Apple's long range planning didn't account for the huge slowdown in China's economy.

 

[SandboxGeneral]

Local vendors in China are said to be "focused on promoting entry-level and mid-range 4G models," instead of trying to convince the Chinese public that Apple or Samsung's smartphones are worth the higher price points.

I suppose that if the less expensive models are meeting the needs and desires of the consumer public in China then that would explain the lack of sales on the Apple and Samsung phones.

 

[machpost]

Cheap Chinese electronics have increased dramatically in quality over the last decade or so, but ultimately I think you still get what you pay for.

 

[MecPro]

I suppose that if the less expensive models are meeting the needs and desires of the consumer public in China then that would explain the lack of sales on the Apple and Samsung phones.

Exactly.

The slant this angle is taking is like China doesn't want to buy Apple or Samsung phones.

They'd just rather buy what suits them here and now.

The general rhetoric (not scientific) in other countries seems the same for the new iPhone too, so I don't see this getting any better

 

[iClone]

Not really surprised

 

[Rocketman]

The number of switchers from commodity smartphones to iPhones is impressive. Give it a couple of years.

 

[DaveTheRave]

From what I've read most Chinese smartphone users spend a lot of time within Wechat. The app does things that other messenger apps are just starting to do: hail cabs, shop online, transfer money, buy movie tickets, pay your bills, and lots more. I'm guessing that for most Chinese a mid-level android phone is good enough since you can run Wechat on any phone/OS.

 

[Sunny1990]

The only solution is drop the price

 

[Zirel]

To the hell with units sales!

Most of those smartphones are under $150 and $100.

Who cares about unit sales?

Apple has their own stores, so 3rd party retailers can stop stocking iPhones, that's no problem for Apple. But they won't, because retail margin on iPhones are quite considerable.

Developers know that iPhone users are the most engaged users in the market, more likely to hail a ride, or buy digital goods, the AppStore is #1 world wide, so software is not going anywhere.

So what's really the point of unit sales and this stupid "Apple vs World, and World decides the rules" war?

Apple might be losing sales because lots of people upgraded from 2 year and 1 year iPhones to the 6 promptly and now don't see a reason to upgrade and the second hand market was flooded with 5's and 5s's. The rethoric that Apple is losing sales because of smartphone quality vs the competition is ridiculous. In 2015 there were the same quality phones for low prices and in 2014 the same was also true.

Also, those numbers are false, Kantar reports 17.9% for iOS in China. So one is lying. I would say Digitimes source is lying. Either the data is trustworthy or it's not. And it's not.

 

[Avieshek]

iPhones are made in China anyway. Therefore, they will have access to learn the same quality controls.

 

[2457282]

Regardless of the market, there will always be more people buying the cheapest product than people buying the most expensive. The issue for the expensive side is to convince consumers that spending the extra dollars is worth it because of x or y. On the cheaper end the issue is to convince the consumer that the cheap product is good enough. Until apple shows up with something to again pull away from the pack the cheap phone "message" is making more sense. Apple dropping its price is not the answer. You cannot compete and make any profit on cheap. The answer is for Apple to announce products that provides sufficient differentiation to justify the cost.

 

[Zirel]

The only solution is drop the price

Solution for which problem?

For the fact that Apple is still #1 in revenue and also #1 in profit and also #1 in software sales?

 

[Rocketman]

Solution for which problem?

For the fact that Apple is still #1 in revenue and also #1 in profit and also #1 in software sales?

Yes, that problem.

 

[69Mustang]

Regardless of the market, there will always be more people buying the cheapest product than people buying the most expensive. The issue for the expensive side is to convince consumers that spending the extra dollars is worth it because of x or y. On the cheaper end the issue is to convince the consumer that the cheap product is good enough. Until apple shows up with something to again pull away from the pack the cheap phone "message" is making more sense. Apple dropping its price is not the answer. You cannot compete and make any profit on cheap. The answer is for Apple to announce products that provides sufficient differentiation to justify the cost.

I think the problem for Apple and Samsung is fairly easy to see as it relates to China. To the buying public in China, there's little to no difference between the cheap and expensive phones. Neither Apple nor Samsung bring any clear differentiation that, in the Chinese consumers mind, justify the premium price. In a lot of cases Chinese consumers can get metal frames, HiDPI screens, fingerprint sensors, crap tons of RAM, etc. They can get all of those things for half or even a third of the cost of premium phones from Apple and Samsung.

We agree that Apple and Samsung have to provide significant differentiation to entice more Chinese buyers. But what can they introduce that will provide that differentiation? 3D Touch? meh. Iris unlock? yawn. The reality is the lower and mid tier phones compete very nicely with premium phones.

 

[2457282]

I think the problem for Apple and Samsung is fairly easy to see as it relates to China. To the buying public in China, there's little to no difference between the cheap and expensive phones. Neither Apple nor Samsung bring any clear differentiation that, in the Chinese consumers mind, justify the premium price. In a lot of cases Chinese consumers can get metal frames, HiDPI screens, fingerprint sensors, crap tons of RAM, etc. They can get all of those things for half or even a third of the cost of premium phones from Apple and Samsung.

We agree that Apple and Samsung have to provide significant differentiation to entice more Chinese buyers. But what can they introduce that will provide that differentiation? 3D Touch? meh. Iris unlock? yawn. The reality is the lower and mid tier phones compete very nicely with premium phones.

Yes, as you know, I have been saying that from a hardware perspective, I think it will be difficult to differentiate. Initially, and some of the new world markets, I have always touted the integration between devices as the big difference that no one else has done as well as Apple. But increasingly that is no longer an issue, primarily because you don't need to integrate between devices. People are simply buying the big phone, aka phablet, and using that for everything. That really leaves only two thing to stand out on - one is the app store and the other is services. Apple used to be way out ahead on the app store, but not as much lately. I still think it is safer in the Apple App Store compared to all the malware that you get in the Google App Store, but many don't seem to understand that. Apple is trying hard on services, but is nowhere near where it needs to be. The services (iCloud, Music, itunes, Siri, Maps, etc) are still not best in class but also run into problems with the government that get concerned about those services.

So in my mind, to answer your question -- unless apple has some super technology coming out (i doubt this), the question is how will apple build up the services and app stores to make it appealing in these new markets. Would investing in iworks again help? Will the new emphasis on Photos and iMessage be the answer? Apple Music? I am really hoping to hear something in September that makes me go -- Ah now I see where they are headed and it all makes sense.

 

[dmylrea]

Look around. Even here in the US, we are seeing great 5" and larger phones that are actually pretty decent for as low as $69. Even a really good, high-spec phone is $200. Times are changing and with people wanting new hardware more frequently, does it make sense to drop $1000 on a phone? Does everyone need a 12-core monster phone with every feature imaginable?

The fact that manufacturers can sell a full-featured, usable smartphone for less than $200 is a sign of even more less expensive choices down the road.

Except for ones with an Apple logo on it.

 

[512ke]

Those same lower cost Chinese smart phones are going to threaten Apple's sales outside of China, as well. Think about the cool design and built quality of the newest Galaxy phone, but sold for way less....

My question is, going forward can you still charge $600 for a smart phone? The answer might be "not any more."

Some of Apple's advantages are going away. iTunes used to be a big reason to own an iPhone for instance. But now music is all about streaming. So any internet device will do.

I am sticking with Apple but I do see trouble ahead in a world where Android does all people need (even if iOS is better), rival phones are as good as iPhones or superior technologically, and rival prices are coming down continually.

 

[macfacts]

Chinese users use we chat, so the imessages/facetime lock-in doesn't exist.

 

[69Mustang]

Yes, as you know, I have been saying that from a hardware perspective, I think it will be difficult to differentiate. Initially, and some of the new world markets, I have always touted the integration between devices as the big difference that no one else has done as well as Apple. But increasingly that is no longer an issue, primarily because you don't need to integrate between devices. People are simply buying the big phone, aka phablet, and using that for everything. That really leaves only two thing to stand out on - one is the app store and the other is services. Apple used to be way out ahead on the app store, but not as much lately. I still think it is safer in the Apple App Store compared to all the malware that you get in the Google App Store, but many don't seem to understand that. Apple is trying hard on services, but is nowhere near where it needs to be. The services (iCloud, Music, itunes, Siri, Maps, etc) are still not best in class but also run into problems with the government that get concerned about those services.

So in my mind, to answer your question -- unless apple has some super technology coming out (i doubt this), the question is how will apple build up the services and app stores to make it appealing in these new markets. Would investing in iworks again help? Will the new emphasis on Photos and iMessage be the answer? Apple Music? I am really hoping to hear something in September that makes me go -- Ah now I see where they are headed and it all makes sense.

So we're in agreement again (sigh). 'Cept about Google Play App Store. Google's app store is a non-factor in China. They left China in 2014 over censorship issues. Rumored to be coming back this year maybe with a scaled down version. Pretty much useless. The app store big boys are Baidu, Tencent, Xiaomi, and Huawei.

Honestly, I'm not really sure what can be done. We try to use American/European comparisons and they fall short. China's market is an unique entity unto itself.

 

[doelcm82]

The problem is Apple's long range planning didn't account for the huge slowdown in China's economy.

But it likely does now.

 

[Kevin2055]

It is just the common product life cycle that every product will eventually reach the destiny to become low margin commodity, just like how Ford did to cars.

 

[vvs14]

I am not surprised at all.... This is not 2011 when only a few companies knew how to make good smartphones. Companies are making top quality phones for much cheaper. Not saying Apple needs to start lowering their prices, but they need to know that this will affect their sales, which I am sure they know. With the current prices, they cannot expect to make in-roads in countries like India. Poverty is not the reason iPhones don't sell their. Its because of low cost, high quality competition.

 

[kdarling]

It is just the common product life cycle that every product will eventually reach the destiny to become low margin commodity, just like how Ford did to cars.

Or mass consumer items like microwave ovens, video recorders, digital cameras, CD and DVD players, and all the other now common products which started out around $1,000, and later would be available for even less than $50.

My question is, going forward can you still charge $600 for a smart phone? The answer might be "not any more."

The answer actually is, you never really could to the non-business market. Relatively few mass consumers were ever willing to pay that much, at least not all at once upfront.

That's why Ballmer mocked the first iPhone's $500 upfront cost. And he was right.

The only way that phones over about $250 sell well, is if their true cost is hidden by contract subsidies or (to a lesser degree) outright loans.

Japan was a good example. It's a wealthy and modern country, yet the iPhone barely made a blip there until carriers began giving it out for "free" with a contract. Then suddenly half the country owned one.

Heck, look at how many Americans thought that the iPhone actually only cost $200 (the upfront deposit) to buy.

Now $200 will buy a very decent phone outright in many parts of the world. No loan or contract necessary.

 

[LovingTeddy]

To the hell with units sales!

Most of those smartphones are under $150 and $100.

Who cares about unit sales?

Apple has their own stores, so 3rd party retailers can stop stocking iPhones, that's no problem for Apple. But they won't, because retail margin on iPhones are quite considerable.

Developers know that iPhone users are the most engaged users in the market, more likely to hail a ride, or buy digital goods, the AppStore is #1 world wide, so software is not going anywhere.

So what's really the point of unit sales and this stupid "Apple vs World, and World decides the rules" war?

Apple might be losing sales because lots of people upgraded from 2 year and 1 year iPhones to the 6 promptly and now don't see a reason to upgrade and the second hand market was flooded with 5's and 5s's. The rethoric that Apple is losing sales because of smartphone quality vs the competition is ridiculous. In 2015 there were the same quality phones for low prices and in 2014 the same was also true.

Also, those numbers are false, Kantar reports 17.9% for iOS in China. So one is lying. I would say Digitimes source is lying. Either the data is trustworthy or it's not. And it's not.

You can stop your BS all together.

2 year contract is not thing in China. Most people buy unlocked phone. Most people don't sign into 2 years contract.

You try to abolish carrier subsidy for iPhone. You will see iPhone sale down to the toilet. This is exactly what happen in Chinese and Indian market.

All the list of thing you listed aren't really applicable to Chinese market. China has its own thing, where people are not locked into Apple's ecosystem. Chinese people has its way to finding apps, music. Apple Stores in China are still not common place in China. People aren't use Apple's services. iOS still lacking some basic features that offered in mosy Chinesr phone makers.

You know nothing about Chinese market. All you know is that Apple is awesome in west, same logic must apply to China.


Huawei, Oppo, Meizu and Xiaomi are abousltly killing Apple.

It does not really matter Apple's market share is one digit or two digits. The fact is Apple's share in China is dropping and dropping realtive fast.