By Yang Jie
A fall in Apple's sales in China -- even after a rare discount on iPhones -- shows that some consumers there no longer see Apple's flagship product as the most advanced in technology.
For one thing, iPhones don't yet feature the built-in artificial intelligence functions offered by rivals such as China's Huawei.
Apple said Thursday that global sales in the January-March quarter fell 4.3% compared with the same period a year earlier. A big reason was China: Sales in what Apple calls "greater China," including mainland China, Taiwan, Hong Kong and Macau, dropped by 8% to $16.4 billion.
Counterpoint Research, a market-research firm, said iPhone unit sales in China fell nearly 20% in the quarter. The iPhone lost its No. 1 spot among smartphone brands in the country, falling to third behind local rivals Vivo and Honor.
Consumers in China cited the absence of major advancements in hardware and performance as one reason to refrain from getting a new iPhone. Some are switching to Huawei, which has put out advanced phones despite U.S. sanctions, while others are keeping their old iPhones longer.
Tracy Xu, a 41-year-old Shanghai-based human-resources manager, said she found Huawei's camera, battery life and phone reception superior to the iPhone.
She had considered switching to an iPhone after she had trouble using Google Maps on family trips overseas, a hurdle caused by sanctions preventing Huawei from using the latest Google Android smartphone software. Then she unearthed a Chinese app that helped her overcome the problem and access internationally used Android apps.
"I have even less of a reason to switch to an iPhone," she said.
Apple executives said they remained confident in the China business. Chief Executive Tim Cook said on a conference call that some iPhones were the top-selling smartphones in urban China, and he said a recent trip to the country had left him optimistic for the long haul.
"There's a high level of interest and excitement for our brand. The brand is very strong in China," said Luca Maestri, Apple's chief financial officer, in an interview.
Most of Apple's recent phone models sell for more than $600 in China and around the globe, while Chinese rivals have broader lineups with a better chance of capturing consumers during the country's current economic doldrums.
Yu Deng, a 35-year-old iPhone user from central China's Hunan Province, recently looked at replacing his wife's iPhone 13 to get more storage for family photos and videos. He said the couple decided against it after concluding that replacing the phone's batteries and upgrading their iCloud storage would give them what they needed for less money.
Deng said recent iPhone releases didn't offer much excitement and seemed to bring minimal hardware improvements. He said he was still an iPhone fan, but "Android devices do offer more competitive features nowadays."
Apple, which usually shuns discount sales, ran a multiday promotion in China in January, cutting the price of iPhones by the equivalent of up to $70. The promotion came ahead of the Lunar New Year holiday, a traditional gift-giving season.
Huawei, which lost access to advanced chips owing to U.S. sanctions, staged a comeback last year with self-developed chips that made its phones compatible with the latest high-speed technology known as fifth-generation, or 5G.
In April , Huawei introduced new models, the Pura 70 series, ranging from about $760 to $1,500, with even more powerful chips than before.
While most Chinese consumers say they pick a phone based on price and performance, geopolitical tensions aren't helping Apple. The Chinese government has banned the use of iPhones in government agencies.
Huawei's unit sales in China grew 70% in the January-to-March quarter, according to Counterpoint. It found that in China's premium smartphone market, increasing competition from local brands has caused the iPhone 15 series to underperform overall, although the iPhone 15 Pro Max continues to dominate the topmost segment.
Leading Chinese brands including Vivo, Xiaomi, Huawei and Honor have recently introduced smartphones that use AI for purposes such as translating languages and creating and editing images.
Samsung Electronics also entered the AI smartphone market, helping the South Korean company surpass Apple in global smartphone shipments in the first quarter, according to research firm Canalys.
Under Counterpoint's definition, more than 10 phone makers have introduced more than 30 smartphones with generative AI capabilities, which have become familiar through programs such as ChatGPT. None of those models comes from Apple -- yet.
"We see generative AI as a very key opportunity across our products and we believe that we have advantages that set us apart," Cook said on the conference call.
He said Apple would say more about its AI initiatives in the weeks ahead. The company is widely expected to do so at its Worldwide Developers Conference in June.
Around the world, Apple holds an advantage in the way it integrates products such as smartphones, tablets, watches and laptops into a single enclosed system, helping users enjoy a unified experience. Apple said earlier this year that there were 2.2 billion devices in circulation at the time using its iOS operating system.
That could serve as a platform for a new growth spurt in China and elsewhere once Apple joins the race to fully integrate AI into smartphones. Analysts said AI was likely to become an essential feature in midrange to high-end smartphones from next year.
--Aaron Tilley contributed to this article.
Write to Yang Jie at jie.yang@wsj.com
(END) Dow Jones Newswires
May 03, 2024 05:26 ET (09:26 GMT)
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