Sharp drop in Chinese smartphone sales portends bad news for Apple
Adding to evidence that a recovery of Apple's iPhone sales is months off, Chinese smartphone shipments fell over 20 percent year-over-year in February, according to a government-backed research institute.
Shipments were down to 13.8 million, said the China Academy of Information and Communications Technology in data seen by CNBC. While February is often a weak time for the country's smartphone market because of the Chinese New Year holiday -- and the launch of new phones at Mobile World Congress, towards the end of the month -- February 2019 was reportedly the worst month for Chinese shipments since 2013.
An IDC analyst, Xi Wang, suggested that the figures can be blamed on a combination of an economic slowdown, a saturated marketplace, and built-up inventory at retailers. Phone makers are known to sometimes ship large numbers of phones to retailers in January.
A Mirabaud Securities analyst, Neil Campling, added that the smartphone market may also be suffering from "a lack of revolution," with high prices for evolutionary hardware when what many people have does the job.
"People aren't waiting for the next releases -- they are tired of the options," he argued. "We are waiting for the next big thing -- but there are no clear signs yet of what that could be."
It's not clear to what extent the iPhone was hit by February's sag, but Counterpoint Research analyst Neil Shah suggested that "Apple and Xiaomi continue to be the biggest losers," while local brands Huawei, Vivo, and Oppo are picking up more sales.
"The China market has become a zero sum game with replacement rates becoming slower in the premium end of the market and most folks are not upgrading their expensive and durable smartphones," he continued. "Most of the growth is coming from mid-tier of the market where Huawei's Honor brand, Nova series, and Oppo's A series is doing quite well and affecting Xiaomi."
Apple's iPhone sales plummeted 15 percent in the December quarter, leading to lower-than-anticipated revenue of $84.3 billion. This was blamed primarily on the Chinese market, where competition from lower-cost local brands overlapped with Apple once again hiking iPhone prices.
The company has tried a variety of pricing tactics to revive iPhone sales, but these appear to be lessening the damage rather than turning things around. Some analysts have predicted that Apple won't see a true recovery in iPhone demand until 2019 models launch this fall.
On Tuesday, separate research by Longbow and JP Morgan indicated that Apple's supply chain is reflecting weak iPhone demand with poor performance. Longbow added that people are even searching for iPhones less often on the Web, in fact 47 percent less on China's Baidu.
Shipments were down to 13.8 million, said the China Academy of Information and Communications Technology in data seen by CNBC. While February is often a weak time for the country's smartphone market because of the Chinese New Year holiday -- and the launch of new phones at Mobile World Congress, towards the end of the month -- February 2019 was reportedly the worst month for Chinese shipments since 2013.
An IDC analyst, Xi Wang, suggested that the figures can be blamed on a combination of an economic slowdown, a saturated marketplace, and built-up inventory at retailers. Phone makers are known to sometimes ship large numbers of phones to retailers in January.
A Mirabaud Securities analyst, Neil Campling, added that the smartphone market may also be suffering from "a lack of revolution," with high prices for evolutionary hardware when what many people have does the job.
"People aren't waiting for the next releases -- they are tired of the options," he argued. "We are waiting for the next big thing -- but there are no clear signs yet of what that could be."
It's not clear to what extent the iPhone was hit by February's sag, but Counterpoint Research analyst Neil Shah suggested that "Apple and Xiaomi continue to be the biggest losers," while local brands Huawei, Vivo, and Oppo are picking up more sales.
"The China market has become a zero sum game with replacement rates becoming slower in the premium end of the market and most folks are not upgrading their expensive and durable smartphones," he continued. "Most of the growth is coming from mid-tier of the market where Huawei's Honor brand, Nova series, and Oppo's A series is doing quite well and affecting Xiaomi."
Apple's iPhone sales plummeted 15 percent in the December quarter, leading to lower-than-anticipated revenue of $84.3 billion. This was blamed primarily on the Chinese market, where competition from lower-cost local brands overlapped with Apple once again hiking iPhone prices.
The company has tried a variety of pricing tactics to revive iPhone sales, but these appear to be lessening the damage rather than turning things around. Some analysts have predicted that Apple won't see a true recovery in iPhone demand until 2019 models launch this fall.
On Tuesday, separate research by Longbow and JP Morgan indicated that Apple's supply chain is reflecting weak iPhone demand with poor performance. Longbow added that people are even searching for iPhones less often on the Web, in fact 47 percent less on China's Baidu.
Comments
To put things in context, just one year ago from the South China Morning Post; "Apple’s China sales grow for second straight quarter on strong iPhone demand...Mainland Chinese consumers had accounted for about a third of all iPhone users globally, according to research firm Newzoo. It estimated the mainland had 243 million iPhone users as of July last year, which made up 33 per cent of the worldwide total of 728 million in that period."
So to expect infinite massive growth is irrational and I'm guessing any company not named Apple would be feted for such sales numbers even half that.
The timing and Tim Cook’s hope this war is resolved quickly should be a hint. Apple was firing on all cylinders at the beginning of the holiday quarter which is when the tarriffs kicked in. Suddenly Apple was in a position where China was such a drag on the results they had to make a public adjustment to the expectations. When was the last time that happened. If they were not affected in this way by a global slowdown, and sales of the new phones were booming the previous quarter, it’s clear there was a drastic change in the environment in China that just happened to coincide with tariffs imposed by the US
China doesn't even hide the fact that they see us as the enemy and want to kick us out us as the world super power. Doesn't sound like a friendly market. It's very telling that nobody in Asia trusts China, so why should we?
So overall, smartphone sales are falling. Apple also has to contend with the unofficial boycott, which is why things are so grim in China for them.
Apple's sales have been flat for years (including last year when there was also a slight contraction in some markets).
Apple may be facing some headwinds beyond its control but those headwinds can be mitigated. Other headwinds are entirely of its own doing and that is where (to quote Tim Cook) 'miscalculations' come into it.
These things happen but I question the judgement that led to those miscalculations all the same.
Apple is making changes slowly, though.
1. Reducing dependence on iPhone
2. Implementing a major shift in business model, switching to three new models a year and opening the product spread (late 2017)
Etc.
These changes need time to be evaluated. Right now (at current pricing) they haven't led to a major change in the situation (although they may have avoided an even worse situation from appearing).
Price is obviously the easiest variable to manage and that is what Apple is playing with now.
Beyond price, the whole notion of 's' cycles needs to be looked at. If (during 2017/18) you launch major upgrades but still end up lacking in vital areas (camera, modem, battery etc) against the competition and then refresh the lineup with incremental upgrades that still lack, the competition will simply pull further ahead. If, in spite of lacking in those key areas, you increase overall pricing you are taking some big risks. Risks that are accentuated by having just one release cycle.
One possible option is to put the both the 's' release and the major refresh into the same year.
To give an example. Last year's refresh was so underwhelming that it would be fair to say that most of the release buzz centred on Apple Watch. No one is talking about any of the major iPhones from last year now. This is a marketing headache as they are left twindling their thumbs when they should be creating buzz.
So MWC came and more or less at the same time all the attention switched to Samsung/Huawei/5G. Apple disappeared into the void.
Next week we have another huge Huawei launch. The following month the Galaxy fold will reach users. Soon after that, the Mate X will arrive. The iPhone will struggle even to get a mention and I can assure you if it does, it will be to highlight how poorly it stands up to the competition. Expect the iPhone XS series to be used for comparative purposes at the P30 Pro even next week.
All of that is just the lead up to year end when the real major releases will happen (Note/Mate series).
Try telling people this Christmas that 5G isn't something they should worry about. You will be competing against an onslaught of 5G marketing. iPhone sans 5G will be a harder sell.
It wouldn't be such a problem shipping without 5G late this year as long as they don't have to wait until the end of 2020 to have a 5G capable phone. That's where a new release point could come in handy. If they could announce at MWC 2020 and ship in April, it could get them in the 5G fight.
When Huawei released the Kirin 980 in August last year it was already Balong 5000 compatible. This means it is relatively easy for them to go 5G and the reason why the Mate 20 series will be upgraded to 5G in select 5G markets. Little to no effort upgrading an existing phone that can be made even more appealing on price as it's already been on the market for five months.
Next week there will be an Apple event ( fingers crossed for a new iPad Mini) but barring a major shock, there will be no new phone ( which remains the core of Apple's business). Many will have there fingers crossed for a new SE all the same.
Yes the hardware is better and is longer-lived and yes the market in China has undoubtedly changed. Either the effects of the local economy, the war on Huawei, Chinese pride, etc.
Apple needs to do what Apple does best. I for one don’t think Apple should abandon the Chinese market. For better or worse, we are entering the Chinese century. All companies are going to have to contend with this (including other American tech companies and Samsung)...’my money is still on Apple.
And Apple knows best how to protect its IT.