According to analysts the high price of the iPhone X is discouraging many potential customers in China from buying the device. Additionally Apple is having to contend with aggressive local Chinese manufacturers who include Oppo and Huawei who are making premium smartphones that they sell at a lower price. Per the analysts the market share of Apple will decline and this will show in the results of the upcoming quarter.
When Apple unveiled the iPhone 6S three years ago the tech giant managed to sell 71 million smartphones in Hong Kong and China. Since then Apple has found it hard beating those numbers. In the 2017 fiscal year for instance Apple sold 49 million iPhones in the region. According to Benjamin Wilson and Steven Milunovich, analysts at UBS, in fiscal year 2018 the number of iPhones that Apple will sell in Hong Kong and China will be 47 million.
Longer upgrade cycles
“We think it’s doubtful China returns to its 2015 peak as local brands have caught up and upgrade cycles are lengthening; we expect a flattish market, give or take a few points of growth depending on the overall market and product cycle,” UBS analysts said in a client note.
Per the UBS analysts the market share of Apple among the Tier 1 and Tier 2 consumers was between 40% and 50% but now has declined to between 20% and 30%.
While China has a huge population which offers a vast market opportunity only between 200 million and 300 million of the 1.3 billion Chinese are in the Tier 1 and 2 cities such as Beijing and Shanghai, which are considered rich enough to have the means to purchase iPhones. Away from these cities Apple lacks promoters and distributors.
Chain of distribution
Per Milunovich local Chinese smartphone manufacturers use promoters extensively with a view to influencing consumer decisions. Huawei, Vivo and Oppo have more than 100,000 promoters each while Apple only boasts of 4,000 promoters.
Currently the market share of Huawei as well as other premium manufacturers of Android smartphones is around 56% versus Apple’s 37%. Three years ago Apple had the lion’s share of the market at 54% according to Gartner and UBS data. This indicates that Apple has lost market share of 32 points.
Analysts have also been waiting for an iPhone upgrade supercycle since the success of Apple in 2015 but this has failed to materialize. Part of the reason is that consumers are taking longer to refresh their iPhones.