
Apple Priced Itself Out of Shrinking Chinese Smartphone Market - jeo1234
https://www.bloomberg.com/news/articles/2019-01-03/apple-priced-itself-out-of-shrinking-chinese-smartphone-market
======
nostromo
That'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-...](https://www.wsj.com/articles/chinas-economic-downturn-takes-the-
shine-off-its-resilient-consumers-11546513717)

~~~
tivert
> 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
So, probably the only thing that China buys from the West...

------
ancorevard
You 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-...](https://www.bloomberg.com/opinion/articles/2018-12-31/china-
s-economic-slowdown-is-worsening-stop-dithering-beijing)

~~~
joe_the_user
Why 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
From 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-...](https://www.apple.com/newsroom/2019/01/letter-from-tim-cook-to-
apple-investors/)

------
baroffoos
I really don't understand why anyone is paying $1000+ for a phone when you can
get really amazing phones for $300.

~~~
inscionent
I really don't understand why anyone is paying $300+ for a t-shirt when you
can get really amazing t-shirts for $10.

~~~
mayankkaizen
Can't speak for other countries but in India, people buy iphones only as a
status symbol. They don't really care about privacy or excellent hardware or
Apple ecosystem.

~~~
sho
Oh, you've gone and personally asked every single one of them, have you?

What a ludicrous generalization. Not only do I personally know Indians who own
iPhones and Macbooks for exactly the same reason I do - we like them better -
but you could make the same specious argument about anything, anywhere.

And really, does merely owning some sort of iPhone really confer status
anywhere anymore, if it ever did? I haven't noticed anyone besides high-
schoolers caring at all about whatever brand of phone someone happens to
prefer for a decade. Time for that old trope to lay down and die.

~~~
claudiawerner
>And really, does merely owning some sort of iPhone really confer status
anywhere anymore, if it ever did?

No, but owning a newer one impresses those easily impressed. It says to others
that you can afford it. The Internet, at the least, is rife with memes about
Android users being "cheap". Gifts of iPhones are often also highly valued
over Androids as gifts.

The same sort of person impressed by expensive handbags and highstreet
designer clothing in everyday situations is the same sort of person impressed
by iPhones and sport cars in cities. I don't mean to pass any judgement when I
say that, but I find the notion that people simply don't think "but I'll look
poor if I use that" (perhaps unjustifiably, perhaps unconsciously) to be
simply absurd. The vast quantity and desire for such show off products would
show you wrong.

The truth is that few people (and I know that this might sound unbelievable to
a HN reader) simply don't care very much about a phone's functionality beyond
availability of apps (which is almost at parity level between Android and
iPhone), performance (the minimum accepted being met by almost all popular
phones) and integration with other tech (which seems to matter less now that
people have moved from using iTunes to Spotify, YouTube and Netflix).

The look and high price are absolutely reasons why someone might prefer to buy
and iPhone. It may not confer status to _you_ but it seems to for a lot of
others.

------
bearcobra
There'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.

~~~
rconti
That 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
> 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.

------
hendersoon
Neither 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.

~~~
jdminhbg
And WeChat has been all of those things for years, so what's different about
1Q19?

~~~
izacus
General availability of significantly cheaper, but still quality, phones from
Huawei, Xiaomi and other competitors.

------
gist
The 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
Isn'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.

------
throwaway5752
I 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
It 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.

------
radicaldreamer
Chinese 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).

~~~
mr_spothawk
> 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
Sales for Chinese competitors are not down though...

------
gwright
Why 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.

~~~
izacus
Because 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
Seeing 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?

------
longerthoughts
Is 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.

~~~
manicdee
Roughly 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.

~~~
bobby177
That doesn’t hold up when you need someone to own your phone to sell them
apps, a watch, AirPods, etc.

~~~
manicdee
The person who spends money has money, so I expect the correlation between
cheap phone and low store spending is fairly high. No idea about the whales
though.

------
rb808
Is 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
In 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
that'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...

------
pnw_hazor
They 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
Do you still use a tablet? What laptops do you like?

~~~
pnw_hazor
I 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)

------
walrus01
People 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
Apple 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-
smartpho...](https://gadgetmatch.com/apple-samsung-huawei-global-smartphone-
profits-q2-2018/)

~~~
walrus01
Never tried to compete on price? Then what were the basic "c" and "se" plastic
bodied iPhone models?

~~~
gwright
I think it is well established that the price range for iPhones has always
been skewed towards the high end of the market. But iPhones at the low end of
that range have always still been considered premium phones relative to the
entire market.

------
Angostura
I wonder if we'll see a new SE. I hope so.

------
woranl
Today’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.

------
andrewmcwatters
This 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.

~~~
snazz
What 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.

~~~
hinkley
$650 to $1000 is a big jump, but it's important to factor inflation into any
financial logic unless you want bad conclusions.

Random inflation calculator is telling me that 2019 prices should be 6% more
than 2015 prices. So right there you're talking about $690 for the same phone
this year. The 55% apparent increase in phone price over that period is more
like 50%. Which is still huge, but not quite as huge.

~~~
izacus
Consumers don't think like that though - noone goes and calculates a
percentage inflation from the previous product. What they see is the previous
price tag and the new price tag... and the amount of money on their bank
account.

------
plg
and 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
Apple 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
The average selling price of an iPhone is over 3 times that of an Android
phone...not exactly “slightly pricier”.

