On Tuesday, market data shows that Apple’s smartphone shipments in China in the first quarter of this year dropped by 19%, marking its worst performance since 2020. Apple’s market share in China declined from 19.7% in the same period last year to 15.7% in the first quarter of this year. The sluggish performance in the Chinese market, amidst escalating geopolitical tensions between the U.S. and China, may prompt Apple to accelerate shifting its production out of China.
According to research firm Counterpoint, Apple’s smartphone market share in China has dropped to the third position, roughly on par with Huawei. Domestic Chinese smartphone brands are leading the growth.
Prior to this, data from market tracking agency IDC showed that while the global smartphone industry as a whole rebounded, Apple’s iPhone shipments in the first quarter of this year fell by nearly 10% year-on-year, mainly due to drag from the Chinese market.
The notable weakness in iPhone sales is partly attributed to the first quarter, which coincides with the traditional peak consumer period during the Chinese New Year.
Counterpoint indicated last month that preliminary estimates suggest a 24% decline in iPhone sales in China in the first six weeks of 2024. In January, Apple offered rare discounts in China to boost sales of its iPhone 15 series, pricing them $180 lower than usual.
Apple’s stock price fell by 0.4% in pre-market trading on Tuesday. So far this year, the stock has dropped by around 14%, following its worst weekly performance in over eight months last week.
Outside of the U.S., China is Apple’s largest single market. Revenue from the October-December quarter last year accounted for approximately 17% of its total revenue.
The crackdown by the Chinese government and competition from Huawei are seen as the main reasons for the sharp drop in iPhone shipments in China. In September last year, U.S. media reported that the Chinese government expanded the ban on using iPhones to government-supported institutions and state-owned enterprises. Some Chinese institutions have reportedly instructed employees not to bring iPhones to work. In December last year, informants revealed to overseas media that in the past couple of months, many government departments and Chinese state-owned enterprises in at least eight provinces had instructed employees to start using domestic smartphone brands.
In addition to the movement to restrict government employees from using iPhones by the Chinese Communist Party, Huawei, a competitor, introduced a domestic smartphone last year and received significant public and covert support from the Chinese authorities, leading to a surge in Huawei’s sales in the country.
A man surnamed Guo, who works at a Chinese government-affiliated think tank, told the Financial Times that his office received an order at the end of last year to stop using iPhones by a designated date. He said, “They didn’t offer us any subsidies. Instead, one day, Huawei representatives came to our office with several boxes of phones and sold them all with a 20% discount.”
Counterpoint analyst, Ivan Lam, stated in a press release on Tuesday, “Huawei’s resurgence directly impacted Apple’s performance in the high-end market. In addition, there has been a slight decrease in Apple’s replacement demand compared to previous years.”
Following the launch of the Mate 60 series in August, Huawei introduced the high-end Pura 70 series last week. The Mate 60 is seen as Huawei’s comeback in the high-end market, equipped with Chinese-manufactured chips.
However, U.S. Commerce Secretary Leandro stated on Sunday that the chip driving Huawei’s flagship smartphones is not as advanced as those from the U.S.
Lam further commented, “In the second quarter, the potential for new color options combined with aggressive sales initiatives may help the brand (Apple) to regain its footing.” He added that iPhone’s weekly sales are slowly but steadily improving.
Political commentator Li Lin believes that the support from the Chinese Communist Party for Huawei, sluggish consumption in the Chinese market, and the escalating U.S.-China trade dispute will prompt Apple to accelerate moving its supply chain out of mainland China. Apple CEO Tim Cook’s frequent visits to India and Southeast Asia recently serve as a signal. The Chinese Communist Party is also aware that squeezing out foreign brands will harm the Chinese economy, but once the bow is drawn, there’s no turning back. Against the backdrop of combating the U.S., the Chinese Communist Party is now putting less thought into this issue.
Cook visited Vietnam, Indonesia, and India last week. Cook’s X account described this trip as a journey to meet with local content creators and communities, but media reports emphasized Cook’s repeated emphasis on the importance of Southeast Asia as a market and emerging manufacturing base. During meetings with government leaders of Southeast Asian countries, Cook discussed further cooperation issues between Apple and respective countries, ranging from additional investments in manufacturing to talent development in artificial intelligence.
Southeast Asia is not far from China and has a basis for shifting supply chains. Even for supply chains that cannot be relocated, rapid transportation is feasible, which offers advantages for Apple in reducing manufacturing costs. Cook pledged to expand investments in Apple’s production base in Vietnam and is also considering production in Indonesia.
Most of Apple’s key production bases for iPad, AirPods, and Apple Watch are located in Vietnam, while suppliers for MacBook are also investing in Vietnam.
At present, Apple does not have production facilities in Indonesia, but it has established four developer academies. Cook mentioned that there are many areas worth investing in Indonesia, and Apple is currently investing in Indonesia. The Indonesian government hopes that Apple will use locally made smartphone components and aims to integrate Indonesia into Apple’s global supply chain.
On April 20th, Cook met with Indian Prime Minister Modi in India, stating that Apple is committed to developing and investing nationwide in India.
Apple has concurrently opened two official retail stores in India. According to Bloomberg, approximately one-seventh of Apple’s iPhones are assembled in India, with a total production value of $14 billion.
Cook’s visits underscore the company’s growing focus on Southeast Asia, largely due to Apple’s underperformance in the Chinese market and the increasing geopolitical tensions between the U.S. and China.