Why Apple Needs a Miracle to Save its Flailing Business in Mainland China
Apple is struggling in China, and many investors expected it. What wasn’t expected is the magnitude of which the technology conglomerate has been unsuccessful in winning over the Chinese market.
The decline in iPhone sales in mainland China has also reportedly affected the suppliers of the firm, whose values declined following the open letter of Apple CEO Tim Cook in early January.
Analysts believe Apple could revitalize its business in China and in Asia, but it will need a miracle and serious discussions on the pricing of the devices.
What Apple’s Core Problems are and How They Can be Addressed
Earlier this month, Cook attributed the decline in demand for the company’s products in China to the ongoing trade war. He stated that the uncertainty of certain geopolitical issues largely contributed to the company’s recent hardship.
However, as Wolfe Research analyst Steve Milunovich said in an interview with The Wall Street Journal, many analysts have pointed toward the maturity of the iPhone as the main reason behind the company’s weakening sales.
Over the past decade, the iPhone has seen an exponential improvement in performance, hardware, and specifications in many areas. But, in the last two years, mobile technology development has reached a plateau.
The problem is not exclusive to Apple, and other leading mobile phone manufacturers like Samsung will have to address the same issue.
For mobile phone makers with lower pricing such as Huawei, Oppo, and Vivo, the pressure of having to revolutionize existing mobile phone models is lower because of their affordability.
“They’re in a bit of a midlife crisis. The iPhone has matured. Patience is required,” Milunovich noted.
Luca Maestri, the chief financial officer at Apple, said that the company is seeing fewer major upgrades than in the past and it could continuously affect the company’s performance in key markets like China throughout the months to come.
Similarly, The Verge social networks columnist Casey Newton said on January 2 that users are feeling less compelled to buy the new iPhone models because previous models like the iPhone X already good enough.
This was the first year in five that I didn’t upgrade my iPhone. Two reasons:
– iPhone X was really, really good, and battery life is still great
– The 2018 models were functionally identical to the iPhone X
So: not just China
— Casey Newton (@CaseyNewton) January 2, 2019
What Can Apple do?
In a period in which more mobile phone manufacturers are emerging with affordable yet high-performance devices, former Apple retail executive Carl Smit said that the company would have to go through a radical change.
The change needs to occur in pricing and integration to compete against local phone makers in China Smit said. Otherwise, local manufacturers will always have an advantage over Apple.
They’re not adapting quick enough. These apps and systems are how people communicate in China, and if you don’t have seamless integration, the Chinese manufacturers have an edge.
Apple is in a situation wherein it could attempt to gear toward Chinese consumers at the risk of diminishing its valuable brand.
But, as Arete Research analyst Richard Kramer said to the Wall Street Journal, that is not a realistic option for the conglomerate.
When you sell a brand with cachet, you don’t want to do anything that diminishes that. Apple can’t afford to substitute local tastes for the massive premiums they get.
Apple Stock Price Climbs on Wednesday
It remains to be seen whether Apple implements a major change to compete against local phone makers in China and what methods it uses to reclaim dominance.
Apple CEO Tim Cook emphasized in the firm’s quarterly earnings call that Apple will not slow down on innovation, which could mean the company will continue to challenge Chinese phone makers in technology as it has done for many years.
“Apple innovates like no other company in the world and we are not taking our foot off the gas,” said Cook.
For now, investors remain confident in the long-term trend of Apple. On the day, the stock price of Apple increased by 6.6 percent.
Featured Image from AP Photo / Ng Han Guan
About The Author
Hong Kong-Based Finance and Cryptocurrency Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the crypto and fintech space since 2012.