Apple’s China loss is local brands’ gain

Following Apple’s latest earnings report, which shows a third consecutive quarterly decline, much of the focus has been on the tech brand’s lagging performance in China.

Hugely successful in China after the launch of the iPhone 6, Apple saw its revenues decline by 30 percent year-on-year in the last quarter, which followed a similar decline the quarter before that.

While once regarded as the only premium smartphone brand in China, Apple has faced fierce competition from Chinese rivals that have significantly upped their offerings in both the high and low tiers of the smartphone market.

While Apple struggles, research from technology market analysts at Counterpoint shows that Chinese brands Oppo and Vivo are on top of the smartphone tree in China for the first time, with 17 percent and 16 percent of the market, respectively.

Counterpoint found Oppo’s R9 smartphone was the top-selling phone for the quarter, usurping a position that iPhones had held in China for years. Furthermore, Alibaba-backed local device maker Meizu has just secured US$79 million in new financing from investors, according to the South China Morning Post. Former darling Xiaomi has struggled of late but cannot be counted out.

Chinese brands have been able to capitalise on both Apple’s slowdown and Samsung’s Galaxy Note7 crisis, said Neil Shah, Counterpoint research director.

“With Samsung losing mindshare and market share, there is a big opportunity in the premium segment (US$600+ wholesale) where Apple has the lion's share, with Huawei the only formidable brand left," he said. "This is the area which Oppo and Vivo would exploit next year… building on their growing brand equity, head-turning industrial design and wider distribution network.”

Oppo and Vivo in particular have had aggressive marketing strategies over the past year, including promotions, strong social-media engagement, and partnerships and sponsorships, such as Vivo’s tie-ups with the NBA and National Geographic, and Oppo’s use of celebrity brand ambassadors.

Apple did not respond to a request for comment from Campaign Asia-Pacific.

Design and distribution are two factors that Apple has struggled to maintain its grip on in the face of competition from local brands. The iPhone 7, which analysts say has made a reasonable start in China, is currently in short supply, hampering sales.

In addition, with the likes of Oppo, Vivo and Huawei offering sleek design and innovative features, Apple has found it harder to retain Chinese consumer loyalty, given the premium price of its iPhone.

Local brands are also pressing their advantage over Apple in China’s lower-tier smartphone market, which is huge; according to PhoneArena, 70 percent of smartphones sold in China last year were priced below US$150.

Speaking to Reuters, Apple CFO Luca Maestri said the company was bullish about China because demand for its newest iPhones was still high and smartphone ownership remains low.

However, according to data from YouGov, purchase consideration in China for the iPhone 7 was lower than previous model launches.

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Ervin Ha, APAC senior director at YouGov, told Campaign Asia-Pacific that while the iPhone overall has been hugely successful for Apple in China, the big drop in brand impression and buzz in the second half of 2016 was worrying.

“It’s encouraging to see that all four metrics recovered after the iPhone 7 launch, but time will tell whether it is going to be as much of a success as prior model launches,” he added.

More telling, according to YouGov data, is the dip in purchase intent for iPhones, which has been superseded by Huawei in 2016.

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“Although the iPhone still has high purchase intent, it is no longer ‘king of the mountain’, especially with other mobile brands starting to rise and compete with similar or better product specifics,” Ha said.

Shah at Counterpoint added: “Apple had a slow first nine months this year, but the iPhone 7 series should help it regain lost market share as the demand for iPhone 7 series is tracking better than iPhone 6s series, according to our recent channel checks. Apple needs to offer something cutting edge to appeal to maturing Chinese smartphone users, [who] are quickly warming up to local brands such as Oppo, Vivo, Huawei and LeEco.”