Currency impact doubled fall for Apple’s sales in China, but underlying conditions remain tough

Apple is looking in pretty good shape this week. After posting a record quarter, IDC reported that the iPhone overtook Samsung during the holiday quarter and Strategy Analytics estimated that the Apple Watch – which also saw record (if unspecified) sales – also took 63% of the smartwatch market.

It wasn’t all good news, however. Alongside a continued slump in iPad sales, the company also reported a 12% fall in sales in China. This contrasted with 14% growth a year earlier. Apple explained one of the reasons for this during the earnings call, but it wasn’t the only one, as the WSJ noted …

Tim Cook said during the earnings call that currency rates – making Apple products more expensive in other countries – accounted for half of the fall. Without that impact, he said, the drop would have been 6%.

But increased competition from Chinese competitors has also been a huge factor. Interestingly, Xiaomi – which started out by cloning Apple’s products, names, software and even keynotes – has seen its fortunes wane alongside those of Apple. A chart put together using IDC data shows that from the third quarter of 2014 onwards, Xiaomi’s market share first rose and then fell in tandem with that of Apple.

Apple and Xiaomi alike saw Chinese brands Oppo, Vivo and Huawei up their games, developing flagship handsets that were good enough to compete with the former market leaders.

Ironically, Oppo and Vivo – owned by the same company – succeeded not by copying Apple’s products but by mimicking Samsung’s ad campaigns.

Oppo and sister brand Vivo have climbed to the top of China’s smartphone market by copying a page from Samsung’s playbook, blanketing target markets with soft-lit ads featuring popular celebrities.

And if you were wondering why Apple was so focused on opening retail stores in the country, making good on its 2014 promise to grow its retail stores from 15 to 40 in two years, the reason is because brick and mortar stores are crucial in China. Some consumers are still wary of online purchases, unsure of what they are buying, especially for high-value items.

Companies like Oppo found favor with mainstream consumers by building out vast networks of brick-and-mortar stores where customers could try phones before buying them […] “The online channel is reaching its glass ceiling,” said Canalys analyst Nicole Peng.

The similarity of the iPhone 7 to 6 and 6s models also hit the company particularly hard in China, say analysts, with consumers reluctant to spend a lot of money on something that didn’t look new.

Counterpoint Research analyst James Yan said that with lower average disposable income than western shoppers, Chinese consumers are less eager to splurge on an expensive new phone that could be mistaken for an older one. “Chinese consumers now have many other options,” Mr. Yan said.

Analysts are cautiously optimistic about Apple’s prospects for a return to growth in China this year, however. Not only is the company expected to launch a radically new-looking iPhone, but – if the company calls it the iPhone 8 rather than any of the other names that have been suggested – it will get an additional boost: 8 is considered a lucky number in China.

Photo: AP