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Apple Priced Itself Out of Shrinking Chinese Smartphone Market
- gist 8y agoThe tone of articles like this is always the same. As if it's a stupid mistake made on the fly. As if Tim Cook was heading out to dinner and someone yelled 'before you leave how much should we charge Tim???' and he shot back with the answer. Apple made a mistake and priced incorrectly but that was not after consideration, thought and strategy. A writer for Bloomberg or an analyst for Loup Ventures is in a different league as far as risk and predictions and job rigor. Apple made a mistake but by the same token the same people making the decisions have done pretty well generally and (wait for it) way better than most SV companies, VC or angels who get multiple do-overs in their daily decision making and analysis.
- hinkley 8y agoIsn't this a general problem with long manufacturing pipelines? Car manufacturers get smacked by economic turns all the time. I bought a new car in '10 because the manufacturer gutted the feature set on the '11 model, once they figured out that the '08 recession was real. I much preferred the original feature set, so I had to buy at a way inconvenient time, about 6 months early, before the dealers ran out of stock. We groused in the 80's about Sony for selling us cheaper, outdated versions of consumer electronics that they sold domestically. You can't recoup R&D costs when the exchange rate is as lopsided as the Yen was at the time.
- AJ007 8y agoI thought it was definitely a big mistake when I first saw the price announced. After thinking about it for quite a while, this may have served a singular purpose - keep the price high enough that Apple doesn't have to worry about antitrust regulators. There is such a thing as too much market share.
- gwright 8y agoThis doesn't sound right to me. At the time the X phones were introduced the chatter was all about them being positioned as more exclusive/higher-end phones and priced accordingly. The higher prices allowed new tech to be introduced while keeping profit margins and also matching supply chain constraints on new technology (like the face-id sensor).
- andrewmcwatters 8y agoThis is an interesting development, but not exclusive to the Chinese market. They've priced themselves out of many working Americans who refuse to put payments on a phone. Many companies, not just Apple, are raising their ASPs, or cutting categories to pursue more affluent customers while tacking on corporate debt to buyback shares in efforts to prop up share prices. I believe what we're seeing isn't an Apple-ism, this is market behavior. And the market is dictating that Tim Cook and others make these decisions from the top down. Almost all auto manufacturers in America are dropping a few cars in their lineup in favor of more expensive SUVs, which people are willing to purchase. And there are many other instances of this behavior going on. Don't pay mind to Apple doing this. Instead, focus your time reading on why companies in the CRSPTM1 are all doing similar things regarding consumer purchases. With the T10Y2Y approaching zero, and eventually negative percentages, I believe we're sitting on a ticking time-bomb that goes off sometime between 2020-2022, but I'm not educated enough to know if this is highly probable or not.
- cm2187 8y agoAnd that’s in period of high economic growth. Wait until there is a recession (which I read a lot of people expect to start this year) to see how their volumes will react.
- snazz 8y agoWhat this might be telling us is that there is, in fact, a cap for the amount of money someone will spend on a phone. I thought $650 was a lot, but then it started looking reasonable as soon as we got to $1000 phones. I have been continually surprised for the last few years that people are not only willing to spend more money but Apple’s unit sales have increased as well.
- andrewmcwatters 8y agoYou're focused on the micro. Yes, Apple is doing this, but why are other American publicly-traded companies also raising their ASPs uniformly? What companies are not doing this who also utilize foreign manufacturing deals? And of those companies, are they purchasing shares back? These things will answer whether or not Apple in the future will go back to selling phones within the ~$600 dollar range.
- ancorevard 8y agoYou can't blame it on the price of the iPhone for what's happening in China right now. Also from Bloomberg: Chinese consumer tax receipts down 70% in November. https://www.bloomberg.com/opinion/articles/2018-12-31/china-s-economic-slowdown-is-worsening-stop-dithering-beijing https://www.bloomberg.com/opinion/articles/2018-12-31/china-...
- hartator 8y agoDidn't knew it was actually absolute numbers. Crazy.
- joe_the_user 8y agoWhy can't it be both? It seems logical that a downturn would hit luxury models most strongly. High pricing can often be self-justifying, especially if it's combined with actual higher quality - except once you reach the point that a thing involves too many material sacrifices and then suddenly the "value proposition" stops making sense.
- ancorevard 8y agoFrom Apple: "over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad." Combine that with: "In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year." In other words, even Mac and iPad fell in China while growing overall for the company. So the problem is not isolated to iPhones in China, consumer spending is way down. And yes, aspiring high-end products like Apple products will take a hit in a market where consumers have less money to spend. https://www.apple.com/newsroom/2019/01/letter-from-tim-cook-to-apple-investors/ https://www.apple.com/newsroom/2019/01/letter-from-tim-cook-...
- longerthoughts 8y agoIs it possible that they deliberately priced themselves in excess of the competition in an attempt to cultivate a more exclusive, high-end image? With so much competition in the Chinese market it has to be hard to distinguish themselves otherwise.
- deleted 8y ago[deleted]
- manicdee 8y agoRoughly speaking, from the beancounter perspective, selling one phone for $50 profit is better than selling two phones for $30 profit each, because you only need ongoing support for one customer.
- baroffoos 8y agoI really don't understand why anyone is paying $1000+ for a phone when you can get really amazing phones for $300.
- nkozyra 8y agoYou could apply the same question to pretty much every consumer product on Earth. The answer is a critical function of marketing.
- HenryBemis 8y agoI've been buying/using iPhones since 2009. The last iPhone I bought was a 7+. Right after that I had sensed that Apple is messing around with us on the CPU thing, and it finally came out that they did. I now have a Honor X8, I am super content about this, it cost me 229 pounds, takes 2 SIM cards and a 128GB SD card. I can also have a firewall NoRoot Firewall), more granular privacy controls, I can root and and replace my hosts file, and some other nifty security/privacy things for paranoids like me. Is it as polished as an iPhone? No Does it cover all my needs fully (and them some)? Yes Did I pay 1/6 of the price? Yes (trust me I can affort any smartphone) Do I think Apple is milking it and offers nothing new? HELL YES I am happy that their stock is getting slapped, Apple put themselves in that position. As for the Chinese economy, at some point many countries will reduce imports from China for a variety of reasons, and the slowing dowin is inevitable. Apple messed it up on many domains. Now they are paying for it.
- gwright 8y ago> Apple is messing around with us on the CPU thing Are you referring to modulating the power usage to avoid random shutdowns? If so, I don't understand why people have viewed that as a nefarious scheme. Seems completely reasonable to me. The newer user-visible stats on battery health and power usage are also a good idea, but don't change the physics involved, you still need to modulate power usage to match what is available or shut down.
- 8y ago
- nostromo 8y agoThat's part of it, but the bigger issue is China is rapidly slowing down. Otherwise Apple would be seeing shrinking sales in other regions, which according to Cook has not been the case. WSJ today posted this alarming chart of Chinese consumption-tax revenue: https://i.imgur.com/2LzUKrz.png https://i.imgur.com/2LzUKrz.png https://www.wsj.com/articles/chinas-economic-downturn-takes-the-shine-off-its-resilient-consumers-11546513717 https://www.wsj.com/articles/chinas-economic-downturn-takes-...
- andrewmcwatters 8y agoThanks for sharing this. I'd rather see meaningful explanations for ongoing trends rather than read people complain about phone prices. Sometimes the latter can explain the former.
- tivert 8y ago> WSJ today posted this alarming chart of Chinese consumption-tax revenue... Here's an outline link for that WSJ article: https://outline.com/tH8sWn https://outline.com/tH8sWn And here's the passage that describes what goods are affected by that consumption tax: > Consumption tax in China is imposed on luxury goods such as high-end cosmetics and jewelry, and items deemed environmentally unfriendly, like cars and gasoline.
- NicoJuicy 8y agoSo, probably the only thing that China buys from the West...
- Arn_Thor 8y agoI think the bigger problem is that the Chinese high-end market is tapped out for anything except newer-looking models (i.e. non-S updates), and that local Chinese brands are eating the low and medium end. Which Apple shouldn't want to dabble in anyway, as the margins are very thin.
- taobility 8y ago1. China is the second biggest market for Apple 2. The cellphone competition in China is hotter than other regions, and the local players manufactured cheaper and competitive phones, like Huawei, OPPO/Vivo, Xiaomi 3. The whole economy situation is not good, the consumer would be more cautious for expensive consuming.
- rb808 8y agoIs Android the only alternative in China? Can Google monetize the Chinese users at all? Must very frustrating to have 1/4 of the worlds population using your OS behind a firewall.
- TazeTSchnitzel 8y agoIn China the OS almost doesn't matter as everything is WeChat. Apple certainly makes money, but everything Google would want to earn goes to Tencent, I assume Android in China is AOSP…
- Markoff 8y agothat's not really truth, it's pretty much useless for gamers and there are Penney of popular apps outside WeChat for messaging and social plus payments (though Alipay it's significant but smaller competitor), sure pretty much zero competition, but for streaming video, music, games etc. no way...
- hendersoon 8y agoNeither pricing nor the economy fully explains why Apple's suddenly doing so poorly in China and not in the US or EU. They're triggers certainly, but not the root cause. There's one keystone here-- WeChat. In the US and EU, Apple has people locked into their ecosystem. That doesn't apply to China. WeChat is their alpha and their omega. They use it not only for chatting, as you might expect from its name-- WeChat is in many ways their _entire operating system_. You pay your utility bills with WeChat, it's your social network, map app, phone app for VOIP, video calls, you access local services, your banking, payments like Venmo, your healthcare, read the news, buy stuff from online stores, EVERYTHING is in WeChat. And WeChat is cross-platform.
- nicoburns 8y agoAre many people really locked into the apple ecosystem. Most apps that people here in the UK use are cross-platform too...
- hendersoon 8y agoThe key differentiator is that in China your smartphone can in many ways be abstracted down to the platform that runs WeChat. So Apple's key lock-ins like iMessage and FaceTime don't matter and it has to compete on price. Apple greatly increased prices in the US/EU also and many of these regions are facing a recession too, but according to Tim Cook's letter those consumers didn't abandon the iPhone. What's unique to the Chinese market? WeChat.
- nicoburns 8y agoHmm... I'm not convinced by that. At least in the UK, I don't know many people who use FaceTime (WhatsApp and Facebook Messenger are the most popular video chat software). People do use iMessage, but that falls back to SMS if you don't have an iphone, and SMS messages are universally free here these days.
- withhighprod 8y ago
- gwright 8y agoWhy is the comparison always done to the newest, high end Apple phones? The iPhone 7 is still sold for $550 unlocked and $23/month on installment in the US. I assume it is also more reasonably priced in China as compared to the high end XS phones. You don't have to purchase the most expensive iPhone to get a high quality phone from Apple. Attributing the decreased demand in China to the price of the most exclusive phone seems misguided to me.
- wmf 8y agoIt's possible that many people in China can't even afford that. Back when the newest iPhone model was $650 I assume the N-2 model was priced even lower than $550.
- izacus 8y agoBecause they can buy a brand new Xiaomi Mi8 for 400$ and have a high-end phone not something 4 generations old. And they do - Xiaomi has incredible growth.
- scarface74 8y agoSeeing that the iPhone 6s is faster than most “modern” Android phones and it isn’t even sold anymore. What does that say about modern Android phones?
- Redoubts 8y ago
- walrus01 8y agoPeople aren't going to buy a $850 apple when they can get a $300-400 (equivalent in Yuan) oppo or xiaomi that is very near top end flagship Android specs.
- gwright 8y agoApple has never tried to compete on price and as such continues to capture most of the profit in the industry. Seems like a good business plan to me. https://gadgetmatch.com/apple-samsung-huawei-global-smartphone-profits-q2-2018/ https://gadgetmatch.com/apple-samsung-huawei-global-smartpho...
- walrus01 8y agoNever tried to compete on price? Then what were the basic "c" and "se" plastic bodied iPhone models?
- plg 8y agoand that's OK Apple is not aiming for mass market. In the same way that Chanel or Coach is not aiming for mass market.
- spinach 8y agoApple has been aiming for the mass market though, even if at the slightly pricier end of it. How exactly have they not been? Though it does seem from here on out, they might try to shrink their market and focus more on luxury products.
- scarface74 8y agoThe average selling price of an iPhone is over 3 times that of an Android phone...not exactly “slightly pricier”.
- deleted 8y ago[deleted]
- bearcobra 8y agoThere's been quite a bit of discussion on how WeChat is basically the OS of Chinese smartphone users, so as long as a phone runs that the switching costs are pretty low. I wonder if there's the possibility of something similar happening in the US/West. I've been tempted to try Android but Facetime & iMessage are pretty good at keeping me on iOS.
- threeseed 8y agoWeChat is definitely popular but it isn't everything. Chinese users also buy apps, take photos, watch movies, listen to music, create content. All of which on iOS is tied to the Apple services ecosystem and hence the switching costs are still significant.
- taobility 8y agoI agree with buy apps, but not the rest. There are lots of local content providers, like Tencent Music, Tecent Video, iQiyi, Netease Music, Youku, which provides music/video streaming service with much better localized content.
- rconti 8y agoThat happened with the web, ironically helping Apple's 'desktop' marketshare. To a large extent, this has always been the case with mobile (particularly if you want to think back to pre-app iOS, where the only lock-in was perhaps with iTunes music). Personally, iMessage and shared iPhoto galleries between a dozen family members around the globe make it fairly "sticky" with me, but there's no reason I couldn't just consume the photos on desktop. I'm not sure I have much of a point here, but I don't think the switching costs have ever been all that high with mobile, and since the popular platforms are pretty mature, most 'necessary' apps are cross-platform.
- Marsymars 8y ago> Personally, iMessage and shared iPhoto galleries between a dozen family members around the globe make it fairly "sticky" with me, but there's no reason I couldn't just consume the photos on desktop. Just last night I re-evaluated the various photo services that were of most interest to me (Apple Photos, Google Photos, OneDrive, Amazon Photos), and settled on Apple Photos. As a macOS/Windows/Android user, who is normally pretty aggressively platform-agnostic I see abandoning mobile access to my photo library as the least-bad option available.
- radicaldreamer 8y agoChinese flagships offer better, more differentiated technology at the same or lower prices... also Android AOSP China is more desirable now because Android apps are first class citizens in China (WeChat + social + camera apps). Apple is losing it's innovation edge as well. Current flagship phone cycles in China are faster than Apple's -- triple, quad cameras, in-screen fingerprint readers, articulating selfie-cams, pinhole selfie screens, and a much better storage proposition (much more NAND for the price in almost every Chinese Android flagship).
- spookware 8y agoCorrect. Iphone does nothing. If Huawei could get into America it would take over.
- mr_spothawk 8y ago> Chinese flagships offer [] more differentiated technology at the same or lower prices... not better... > Apple is losing it's innovation edge as well. Apple's edge has always been its implementation. They were not the first in smartphones, computers, tablets, wireless earbuds. Instead, they make their best attempt at hardware in a sophisticated ecosystem. > triple, quad cameras, in-screen fingerprint readers, articulating selfie-cams, pinhole selfie screens If these technologies become commonplace, we'll see them in the iPhone, too. And, if history is a guide, we'll think that Apple made them up, too... because of how well executed their products are.
- radicaldreamer 8y agoSales for Chinese competitors are not down though...
- Angostura 8y agoI wonder if we'll see a new SE. I hope so.
- throwaway5752 8y agoI read all the comments, and nobody has mentioned consumer nationalism? The US president's behavior and the concept of face? Apple is being dragged down the trade war's reputational halo effect. Keep an eye on major international consumer US brands (Disney, McDonalds, Starbucks, and others). Obviously there's an rapid economic deceleration, too, but things happen for more than one reason most of the time.
- sjansen 8y agoIt probably didn't become a large enough issue until the tail end of last quarter. I expect this will be the quarter that we start to see antagonism between Trump and China have a real effect.
- deleted 8y ago[deleted]
- pnw_hazor 8y agoThey certainly priced themselves out my value zone. When my 6s died recently (power connector issues) I picked up a moto g6 it works fine for me. My personal age of Apple is now completely over. Over about 3 years or so, I went from all Apple (powerbooks/macbook pros, apple tv, iphones, ipad) to no Apple. It was fun while it lasted.
- FPGAhacker 8y agoDo you still use a tablet? What laptops do you like?
- pnw_hazor 8y agoI don't have a tablet anymore. Hardly used the ipad I had. Current laptop is a ASUS 15.6" TUF Gaming FX504GE Laptop. Generally, I just buy a $600-$900 laptop each time the hinges short out (~24 months)
- woranl 8y agoToday’s Apple is like what Microsoft used to be. iPhone X this and iPhone X that. Just like the many editions of Windows. It’s a brand dilution and it almost feels like “ let’s milk it when you still can”. It’s damaging to the brand. This is what companies do when they are no longer run by product people.