Has China lost its taste for the iPhone?

FOR years, Apple dominated the market for high-end smartphones in China. No other company made a device that could compete with the iPhone’s performance — or its position as a status object in the eyes of wealthy, cosmopolitan shoppers.

But evidence is mounting that, for many in China, the iPhone no longer holds the appeal it used to.

During the first six weeks of the year, historically a peak season for Chinese shoppers to spring for a new phone, iPhone sales fell 24 per cent from a year earlier, according to Counterpoint Research, which analyses the smartphone market.

Meanwhile, sales for one of Apple’s long-standing Chinese rivals, Huawei, surged 64 per cent.

It’s a challenging time for Apple. Analysts say its latest product, a US$3,500 virtual reality headset released in February, is still years away from gaining mainstream appeal.

This month, Apple has taken two regulatory hits: a European Union fine of nearly US$2 billion for anti-competitive music streaming practices and a U.S. government lawsuit claiming Apple violated antitrust laws.

For a decade, China has been the iPhone’s most important market after the United States and accounted for roughly 20 per cent of Apple’s sales. Now, the company’s grip on China could be dislodged by a series of factors: a slowdown in consumer spending, growing pressure from Beijing for people to shun devices made by US companies and the resurgence of national champion Huawei.

“The golden time for Apple in China is over,” said Linda Sui, a senior director at TechInsights, a market research firm.

One of the biggest reasons is the rising tension between the United States and China over trade and technology, Sui said. Without a significant lessening of geopolitical stress, it will be difficult for Apple to retain its position.

“It’s not just about consumers,” Sui said. “It’s about the big picture, the two superpowers competing with each other — that’s a fundamental thing behind the whole shift.”

Few American companies have more to lose from these heightened tensions than Apple, whose newest handset, the iPhone 15, went on sale in September. It is the first iPhone line to feature a titanium frame and include an action button that can be programmed to take photos or turn on the flashlight.

“Five years ago, Apple had really strong branding in China — people would bring tents to wait through the whole night outside the Apple Store for the next product launch,” said Lucas Zhong, a Shanghai-based analyst at Canalys, a market research firm. “The iPhone 15 launch wasn’t nearly as popular.”

Six months later, Apple has plastered billboards across cities such as Shanghai, reminding residents they can still buy an iPhone 15 nearby.

Similar promotions helped the iPhone account for four of the six top-selling smartphones in China in the final three months of last year, the company said during a call with Wall Street analysts.

But the prominent advertising did not persuade Jason Li, 22, to visit the Apple Store on Nanjing East Road, in the heart of Shanghai’s shopping district, when he needed to replace his iPhone 13 Pro Max.

Instead, Li went to the Huawei flagship store directly across the street, where he contemplated the Mate 60 Pro.

“I don’t want to use iOS anymore,” he said, referring to the iPhone’s operating system. “It’s a bit stale.”

Apple declined to comment.

For some in China, buying a phone has become a political statement.

Debates over whether using an iPhone is disrespectful to Chinese tech companies or akin to handing personal data over to the US government have erupted online. Last year, employees at some Chinese government agencies reported being told not to use iPhones for work.

These directives surfaced less than two weeks after Huawei unveiled the Mate 60 Pro, a smartphone equipped with the company’s own operating system and a computer chip more advanced than had previously been made in China.

Huawei released the device in the final days of a trip to China by US Commerce Secretary Gina Raimondo. Chinese commentators and state media heralded it as a triumph for Huawei in the face of Washington’s attempts to restrict the company from developing just such technology.

The Mate 60 Pro was an immediate sensation. Its boost to Huawei’s sales carried over into the first six weeks of this year, when the company claimed the second-largest share of the smartphone market, up to 17 per cent from 9 per cent a year earlier, according to data from Counterpoint.

“Today, holding the Mate 60 series gives people a feeling like they had many years ago if someone saw them holding an iPhone on the street,” said Ivan Lam, a senior analyst at Counterpoint Research in Hong Kong. This is especially true for people older than 35, the age group that buys the most smartphones, he said.

China’s smartphone market is divided up by a number of companies. The domestic brands Vivo, Oppo and Xiaomi jostle with Apple and Huawei for the largest pieces.

Apple started selling iPhones in China in 2009. The last time it was losing ground to Huawei, in 2019, the Trump administration inadvertently extended Apple a lifeline by restricting US technology firms from dealing with Huawei.

Google, which makes the Android operating system, and several semiconductor companies cut off their support of the Chinese smartphone maker.

As Huawei struggled, Apple rebounded. In 2022, its share of phones sold in China rose to 22 per cent, from 9 per cent in 2019, according to Counterpoint. Apple reported record revenue of US$74 billion from the region during its fiscal year ending in September 2022.

But the restrictions also forced Huawei to develop its own wireless chip and operating system, resulting in the technology behind the Mate 60 Pro.

The operating system has been a draw for Chinese shoppers, and many of China’s biggest tech companies have made apps exclusively for it, further walling off users from platforms used outside China.

Huawei’s innovation has made Apple’s latest models appear stodgy by comparison. And as China’s economy has struggled to rebound from the Covid-19 pandemic, many consumers are hesitant to spend on what feels like an incremental upgrade.

The owners of about 125 million out of 215 million iPhones in China have not upgraded to newer devices in the past three years, according to Daniel Ives, an Apple analyst at Wedbush Securities.

Apple has responded to the challenges in China. Its CEO, Tim Cook, has travelled to the country and visited Apple’s suppliers.

Last week, he attended the splashy opening of an Apple Store near Shanghai’s Jing’an Temple — the company’s eighth store in Shanghai and 57th in China — to a crowd of Apple fans. The company also said it was expanding its research and development labs in Shanghai.

But for some shoppers, Apple’s efforts have been overshadowed by Washington’s approach to the company’s Chinese rival.

While waiting at the Genius Bar for help with his ailing iPhone 12 at the Apple Store on Nanjing East Road in Shanghai, Chi Miaomiao, 38, said he had recently bought Huawei’s Mate 60 Pro as his second phone.

He was drawn to Huawei after its chief financial officer, Meng Wanzhou, was arrested by Canadian authorities in 2018 at the request of the United States, which accused her of misleading banks about Huawei’s business in Iran.

Meng’s detention set off a flood of support in China, where many saw her as a hostage.

“Huawei is our own brand, and because of this political incident, I think we Chinese should be united,” Chi said.

Upstairs on the Apple sales floor, Li Bin, 23, and two friends debated the latest iPhone models. Huawei and Apple were nearly comparable in quality, Li said, and although he thought the iPhone was slightly better, it was also more expensive.

“I may switch to an iPhone,” Li said, “when I get richer in the future.” NYTIMES