Apple's 5 Biggest Challenges in China

Apple’s sales in China fell nearly 13% to $20.8 billion in the fourth quarter of 2023. China was once considered the company’s main growth driver, but cautious consumer sentiment combined with fierce competition, especially from Huawei, posed a significant challenge for Apple in 2023. The situation may not improve in 2024.

IDC senior research director Will Wong does not expect iPhone shipment growth to return to positive territory this year in China. Huawei is expected to remain the main competitor while more advanced technologies such as AI and foldable smartphones attract more attention from consumers.

So what challenges does Apple face in the world's second largest economy?

The Return of Huawei

Last year, Huawei launched its new Mate 60 smartphone, which has 5G connectivity. This was a big surprise to the world. The reason is that in 2019 and 2020, the US government imposed many sanctions on Huawei, cutting off its access to chips and technology needed for 5G. It also restricted access to Google software, crippling the Chinese tech giant's handset business.

Huawei is really the only serious challenger to Apple in China in the high-end segment. After Huawei's phones lost their competitiveness due to a lack of 5G and advanced semiconductors, customers flocked to the iPhone. Now, with the Mate 60, Huawei is seeing early signs of a revival.

"Huawei's resurgence in the high-end smartphone market is attracting back those who switched to Apple because Huawei failed to release a 5G smartphone in the past three years," Neil Shah, a manager at Counterpoint Research, told CNBC.

In the last quarter of 2023, Huawei returned to the list of top 5 smartphone manufacturers in China.

Competing in the high-end segment

It's not just Huawei that's challenging Apple, other domestic brands from Xiaomi to Oppo have been pushing into the high-end market but at cheaper prices.

“These premium devices are not only competitively priced, starting mostly at 3,999 yuan ($563), but also boast features similar to those found in more expensive phones,” Shah said. “This increased competition is putting pressure on both Apple’s older models and the entry-level models in its new lineup.”

Consumers Be Cautious

China’s economy faced a number of challenges last year, from a property slump to weak consumer demand, which could continue into 2024 and weigh on consumer confidence.

At that point, premium models that are cheaper than the iPhone could be appealing. Josh Koren, founder of venture capital firm Musketeer Capital Partners, points to the Chinese consumer mentality of “I don’t need to pay more for this phone when I can get a cheaper version.”

Apple is not cool anymore?

For a long time, Apple has been seen as a luxury brand in China with a strong appeal to a younger audience. That may be changing.

According to Koren, the Apple brand no longer has the same glossy appeal to Gen Z as before. While many competitors from Samsung to Honor have launched foldable smartphones, Apple has not.

Apple is not typically a first mover, preferring to wait and see if a category takes off. Many smartphone makers are talking about artificial intelligence features on their devices, something Apple has yet to do.

This has led many to question Apple’s innovation in the smartphone space. Koren believes this could be one of the reasons why Apple’s brand has suffered. According to the expert, it is very difficult to innovate to the point of bringing back the reputation of the iPhone.

Geopolitical risks

Like many foreign tech companies operating in China, the specter of geopolitics constantly hangs over them. In 2023, theBloombergChina has extended a ban on employees at government agencies and state-owned companies from bringing iPhones and other foreign devices to work, sources said.