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Apple Priced Itself Out of Shrinking Chinese Smartphone Market (bloomberg.com)
105 points by jeo1234 on Jan 3, 2019 | hide | past | favorite | 153 comments

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:



Why is Huawei doing well then? [0]

"Huawei posted 33% global gains y/y, versus flat for Apple, and for Q3 in China, where Apple is reporting struggles, Huawei sales rose 13%. Have rising trade tensions created anti-American Sentiment???"

[0] https://twitter.com/quantbond/status/1080863553454780416

I think it's all about Apple losing share and being overpriced compared to competition, along with Chinese support for Chinese company.

A slow down will exacerbate this but as of now huge disparity compared to Huawei.

I 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.

> WSJ today posted this alarming chart of Chinese consumption-tax revenue...

Here's an outline link for that WSJ article: 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.

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

> Otherwise Apple would be seeing shrinking sales in other regions

Apple does see shrinking sales in other regions:

"iPhone shipments in India have dropped 40 percent so far in 2018 when compared with 2017"[1]

China and India are the 2 largest developing economies in the world. It's no surprise that Apple's high price strategy has struggled there. Charging $1,000 for a phone might be viable in developed economies, that's not the case in developing countries like China & India.



I still have a had time finding the source of those data shown in the graph. Something isn't right. And remember those big drop are all happening in November and December period, because that is when Chinese are saving up for their Lunar New Year spending.

I don't buy the story of Apple down 50% YoY only because of Macros. If that was the case it would have shown in 17, and 18 as well. If Macros were worst other part of Services Sector would have shown. Single Days wouldn't break record, Mi, Huawei, Vivo, OnePlus, Oppo wont affected domestically.

1. 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.

Thanks 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.

Do we trust statistics from a single party system, however. Could be a political move.

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-...

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.

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.


Didn't knew it was actually absolute numbers. Crazy.

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

I use my phone a lot, and gladly spend a few $ a day for a marginal improvement in my quality of life.

Another question - why do people spend $30k on a car when a $10k car is nearly as good? Seems like a much bigger waste of money than the phone.

I use public transit unless leaving the city, almost never use uber/lyft, and yet have a new iPhone.

Why? I hate driving and would rather be reading or goofing off on twitter than being angry behind the wheel as I get somewhere.

Not for everyone but I'll never go back to driving.

Hah, I'm the opposite. Despite having pretty great transit here, my needs don't quite line up with the transit network, and so some times are far longer than they are by car, to the point of 20min drive vs 1.5-2hr transit. Given that, I got a car... and now prefer it whenever possible.

If I want to engage my brain at all I'll listen to a podcast or something, but often those half hour periods of relative disengagement are very nice breaks to have.

That said, I do choose 10 minutes of walking over 2 minutes of driving in anything but a torrential downpour, or 2 minutes of walking over an extra 30 seconds hunting a closer parking spot. Maybe it just all comes down to not wanting to deal with (potentially unpleasant) people.

If it takes 1.5 hours longer by public transport than by car that means you do not have good public transport. Maybe good compared to surrounding areas but still bad.

I’ve considered buying an expensive car with advanced stop-and-go traffic self-driving mode, but it’s more effective to live next to the train station.

Eh. Having the car self-stop is overrated in my experience. It's really hard to trust it, and not particularly difficult to drive stop-and-go yourself, so long as you accept that you can't rush it.

Adaptive cruise control for fast but varying speeds is great, however - it makes the spacing much better, which makes things more relaxing. It also reduces the active brain load to 'what lane do I need, what's coming up in the next mile, and do I need to be preparing to stop/exit', rather than needing to worry about the car in front of you so much. For me at least, it also makes things like lane changes more deliberate, so instead of "need to change and keep speed" it's something more like "I'll get there when it's safe, and change lanes if it's really clear", which is a much better mindset.

+1 for the adaptive cruise control in fast but varying speed traffic. The variant that my Hyundai has is also really pleasant for stop-and-go traffic, too. As the space shrinks below the minimal set, it'll basically progressively slow down all the way to the point of coasting for quite a while before it finally comes to a full stop (if the traffic hasn't started going yet). A small thing, but since cruise control only disengages if it comes to a complete stop, it in effect makes for a really pleasant stop-and-go commute as it very rarely has to come to a complete stop and disengage along the way. Also has the secondary effect of drastically improving my gas mileage vs. when I manually drive the same commute.

My previous experience with adaptive cruise control with another manufacturer wasn't nearly as polished, so I didn't think much of it when I bought the car. But it quickly became one of my favorite features!

I bought an old $5000 truck, which I know I can find parts for easily. It's got 200k miles on it so far, and I expect to put another 200k on it (assuming I will eventually need to spend ~3k on a refurbished engine).

Hard to argue with $8k for 250k miles.

Unfortunately an old truck is one of the least safe vehicles you can drive. But as far as miles per dollar nothing beats a common $5000 vehicle, that's for sure.

The answer is similar with current computer market. Most of people in the world still choose the cheaper PC, even Mac is more beautiful, solid and fancy.

Component quality, build quality, data security and privacy and length of support/updates.

No matter how much money I pay for an Android phone, I have to fight with it to stop my data being harvested by everything from the very OS up. Sure, I can get decent quality cameras and build quality on Android phones but I’m either paying a stack of money for the likes of a Samsung or I’m paying for something from some sketchy Chinese brand.

I don’t know if any android phone manufacturer has a hardware security implementation as high quality as Apple’s and even if there were, I’m not sure how many of the manufacturers I’d actually trust to build it properly, let alone have the OS use it properly.

I’ve also got far more consistent battery life out of my iPhone X than I have out of my previous Android phones.

Am I paying a premium? Yep. Is it a premium I’m happy to pay because I actually get what I want and my data is so far, more secure than on any Android device: yep.

Yup, Android is sketch and Apple apparently just doesn't want my business.

Ah well.

Well, you can still buy last years iPhone from apple for much cheaper...

with those legacy bezel screens?


Anecdata: I was going to upgrade my iPhone this year, until I saw the new prices and decided I could wait one more year.

I should have been an easy sale. After a bad experience with Android, I have no desire to go back. Budget isn't an issue. But if Apple is going to price phones like laptops, I'm going to upgrade as slowly as I upgrade my laptop. (Which given how long it took them to get more than 16GB of RAM, I've gotten used to doing pretty slowly.)

Precisely the same here, minus android experience – been with Apple since the original iPhone. Money is really no object so I ordered the iPhone X the moment they became available, but the XS really doesn't seem to offer anything new at all. Even now, comparing the models I only see some minor camera changes and an A12 chip over A11. I don't even know what that means. All I know is this phone is crazy good, and it'll have to take some crazy innovation coming out of Apple to get me to upgrade. I fee the same about my MBP frankly. Crazy good hardware, I'll stick with them for sure, but I have no need for anything new because it's pretty much the same as the old.

Similar boat for me. Got an X, didn't get an XS.

The only thing that tempted me was the camera improvements. Which aren't so much camera hardware as them greatly improving their photo processing via specialized computing hardware, as I understand it. Still, I take a lot of photos, and everything about this change looks fantastic.

Gruber's slideshow is good for demonstrating it: https://www.flickr.com/photos/gruber/sets/72157700003327111

Honestly, Apple's consistent approach of "new phone design with number-bump" one year then "same design with incremental improvements and an S" next year means that outside of unusual cases buying a new iPhone every year is silly. X to XS is underwhelming, but 7 to XS (or XR) is quite compelling.

Given which... unless Apple does something outright worrying, I expect I'll buy whatever they put out this Autumn. Get the fancy new camera features, and more of a notable increase everywhere.

That is indeed the trend. iPhones have in recent years been so good in every way that the need to upgrade year-on-year is reduced. With iOS 12 even a 6S feels snappy with a new battery. This trend of a slower replacement cycle has been going on a while, and that is precisely why Apple is raising prices. With slower sales that's the only way to keep revenue growing. And it's working too, iPhone sales met expectations everywhere in the last quarter except China. This isn't an "Apple is failing" story, it's a "Apple misjudged the China slowdown" story

You know Apple does sell other phones besides the 10s Max....

The price is often reduced by your carrier or obscured by no interest payments included in your cell bill.

And those $300 phones don't have a mind-blowing camera, but the latest gen flagships phones finally do. That, plus the fact that phones become obsolete much more slowly now, makes those $1k phones a worthwhile investment to me.

Maybe not $300 but I can get a sony xperia xz2 compact for 3000 NOK ($345ish). Sony makes the cameras in many other phones including iphone. I have the larger version, but my wife has this and it takes excellent photos.

Sony makes the camera sensor. The lens comes from another supplier.

And as the Pixel 3 has shown the software makes far more of a difference to the quality of the photo then the hardware.

And in the case of iPhone, the software takes advantage of custom-made, powerful, performant, and yet efficient chips that would make snapping photos take forever on older or non-specialised chips.

Software and hardware dance together on iOS.

Now you just need to persuade people that paying 500$+ more to get a tiny little less delay after capturing a photo is worth it to people.

Since Apple seems to be failing at that.

In what way does it seem that Apple is failing at that? Are you saying iPhone sales have just completely slumped? That's not what the data is saying.

Apple and other phone makers set the benchmark years ago, people don't seem too interested in going back. Even when they're buying non-Apple phones, they're buying other companies' flagships: Samsung, LG, Huawei, Xiaomi. Those phones are no slouches either.

> The lens comes from another supplier.

The physical focal length of a phone lens is about 3 to 4.5mm. There's not a lot of light-physics you cam do in that much space. Even a cheap point-and-shoot fixed-lens camera will be superior and will cost much less than the phone upgrade increment.

The s7 has a great camera

I don't understand why people are paying 50%+ marginal tax rates when there are plenty of countries with lower rates

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

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.

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.

>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.

touchy subject, but the status symbols most likely aren't targeted at yourself.

Do you have any data to back that up ?

Or are you suggesting you speak for 1.3 billion people.

despite all the advertising, it may surprise you to learn that it's actually quite rare for people to buy expensive clothes. i looked it up one time. i think it said less than 1% of the jeans sold in the US cost more than 50$

Off topic, but I think jeans are a great example of a product where more money leads to a better product, especially for a well informed consumer. Japanese Selvage Denim[0] (starting at ~$80)[1] uses higher quality denim, is woven tighter, comes unstretched/untreated so that the fabric better forms to the wearer's unique body shape, and often uses natural dyes which fade slower.

In my experience they last longer, feel more comfortable, hold a better shape, keep a better color.

[0]https://www.highsnobiety.com/2012/11/16/japanese-denim-a-his... [1]https://www.amazon.com/Unbranded-Brand-UB401-Indigo-Selvedge...

True, but like most things, there's the law of diminishing returns. You'll extract most value out at your $100 price point (or even lower), and yet there are fads for Japanese denim costing a few times that. Same deal with audio etc.

Status symbols. That's why people are also eager to buy knock-off products of those with loud, visible branding (e.g. Supreme).

Market for $300 T-shirts is very small. Niche, not really consumer.

Yeah NO ONE has ever made money selling luxury consumer goods, ever. /s

LMVH made about $50 billion in revenue last year.

Not great. But okay for a tiny market like luxury consumer goods.

Probably should look at shutting up shop at some point.

Not enough to warrant a near-trillion dollar market cap.

It's a good point but most luxury goods are beyond $300 T-shirts.

And when they are, it's because of the brand and everything else going on with the brand.

Thats an even better example of mindless consumerism. At least an expensive phone actually has slightly better features. A tshirt is a tshirt, if it feels good and looks good thats the only meaningful statistics. The expensive ones don't last any longer than the cheap ones in my experience and its purely to show off that you have an expensive brand name shirt.

There's more to an item, especially one like a piece of clothing which involves design, than its utility value.

For a t-shirt, these things jump immediately to mind that may increase its cost:

- A limited batch

- A particular cut

- A particular print

- Supporting a clothing brand / designer you have a connection with

Why judge someone so harshly because they value some other aspect of the item differently than you? There's something incredibly ugly about being confident in your ignorance and casting judgement on other people.

I don't really understand why 21 Savage got a 12 car garage when he's only got 6 cars.

God I wish I could upvote this more than once. I almost fell out my chair laughing.

In China, or elsewhere? What in the US is as good as iPhone (including the screen size and storage size at that price point) for under $800?

A lot of phone have roughly comparable specs, but the camera and overall software behavior is not comparable on lower-tier phones.

I don't question that the super expensive phones are better than the cheap ones but they are better in ways that are so insignificant to the average person. I got a nexus 5x a few years ago for about $250 and it does everything modern phones do. Yes I have slightly less pixels in my selfie and my screen is still rectangle shaped but is that really worth the extra $800? I suspect its simply a fashion/trend thing pushed mostly by successful marketing telling people that what was amazing 2 years ago is now useless junk and you need to buy a new phone.

Give me a break.

This idea that anyone who isn't buying some cheap Android phone is doing it for fashion/trend reasons is ridiculous, insulting and condescending.

The fact is that I care about my privacy and security and only Apple seems to take it seriously. They also support their devices for years so I look at it like its an investment. That is easily worth the extra $10 or $20 a month I pay for my mobile phone plan.

If you cared about privacy and security why would you buy the latest iPhone when you could get one from 2 years ago for a much reduced cost.

This isn't an iOS vs. Android thing. Plenty of people would be happy with an SE 2, or even a 8S (a proper iPhone 9) that retains the home button and/or brings back the earphone jack. This drive for more pixels, more cameras, less buttons, and thinner size- it's hitting diminishing returns unrelated to privacy or security.

And you can still buy an iPhone 7 for $449 and the iPhone 8/8 plus is still for sell...

And in two years?


Seeing that the iPhone 5s was introduced 5 years ago and is still getting updates, the 7 should still be getting updates until 2022.

Do you feel the same way about a current-gen mid-tier GPU vs a 4 year old GPU? Why or why not?

What about cars? Are you proclaiming that everyone should drive a Corolla? Or that everyone should drive whatever it is that you personally drive?

Who are you to decide what is significant to the "average" person, if there is such a thing?

Well most people do drive Corollas and use mid-tier GPUs and buy cheap clothes and all those similar things.

And we're seeing this on the mobile market as well, especially in lower income places like China and India - the 300$ phones these days can do pretty much everything what an iPhone does. With a bit less pixels, slightly worse camera and less words like "Magical!" in the marketing pitch.

So it's getting really hard for people to throw away several months of their savings to get a marginally better product with an Apple logo on it. And you can see this in sales - people go for Huaweis and Xiaomis in Chinese market in droves. Even in Europe, Huawei is gaining a massive piece of market due to their cheap and good offerings.

Nexus 5X is a bad example. I got one two years ago and it was a piece of shit out of the box. No longer supported so I had to trade it in (work phone).

Huawei p20 pro cost less and has better camera

I paid $849 for an iPhone 6s 128GB in 2015. Not only is it still getting OS updates over 3 years later, according to benchmarks, it is faster than any Android Phone in single core performance that was released in 2018 - including the flagship Galaxy S9.

Since the 2013 iPhone 5s is still getting updates, I suspect that the 6s will still get updates at least through 2020.

But right now, you can get an iPhone 7 for $449. Again, if history is any guide, it should get OS updates through 2021.

Why do people buy mid size luxury sedans when a Honda Accord exists?

Most people buy Honda Accords and similar class cars, so you're kinda proving his point :P

The reason people want iPhones is the branding/marketing.

Where I live iPhone is a status symbol. People buy them because they want to show off that they can afford it rather than because there is some special functionality they use. To me iPhone is like Rolex Watch most people who own them probably don't need them and could make do with something much cheaper.

edit: Good example my coWorker told me about her 14 year old daughter begging her for an iPhone. It's the "cool" brand people want. When I was that age I remember Nokia 3210 was the phone everyone wanted. When you have that sort of luxury appeal you can charge more for the product and people will pay.

Well in most industrial nations, the iPhone has 30%+ market share, in the US it hovers around 50%. Nothing with that type of market share is a “status symbol”.

You could apply the same question to pretty much every consumer product on Earth.

The answer is a critical function of marketing.

I'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.

> 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.

They lost me the moment they kept it a secret and they practically monetized on this.

I would gladly pay for a new (£50-£70) battery every 2 years to keep my phone up and running. It is the lack of transparency that made me angry. I do have the technical skills/knowledge to understand the reasons. I also have the critical thinking to (imho) dismiss their BS answer that they force me to spend £1000 instead of £50. And this is where they killed my 'loyalty' to their products.

Every other manufacturer of battery powered devices, including laptops, does CPU throttling based on battery degradation, and doesn't mention anything about it. It sounds like you were just looking for an excuse to jump ship.

> Do I think Apple is milking it and offers nothing new? HELL YES

But this really isn't the question. People "overpay" for luxury goods all the time in lieu of higher quality cheaper products.

Selling expensive stuff doesn't necessarily mean you have to or should have the best stuff.

I don't buy the Marketing lingo. I like the touch & feel. I am one of those people who don't feel "special" or "good for myself" because I have a £1000 phone. I am happy/content because a 'machine' adds value to my life. My phone helps me listen to my podcasts, and helps me navigate when I travel. My Nutribullet helps me make great Paleo smoothies.

I am sure that I am not 100% immune to marketing, but I like to prefer the function over the plush.

Luxury is for other people. I prefer F.I.R.E instead :) I do understand that Marketing creates artificial needs, and I want to believe that I avoid it :)

while 8X it's great deal it has extremely mediocre baskets compared to iPhone, heck even Xiaomi Mi A2 for like 160€ has better camera

and no you can't root Huawei phones without unlocking bootloader, not unless you are willing to part with significant fee to shady third party for something which was provided for free by Huawei

I don't understand why anyone is paying $1000+ for a camera which doesn't make telephone calls.

If you spent $1000+ on a new camera every year and you weren't a professional photographer then I would be questioning your decision making skills.

...yes, because it’s far better to spend $3000+ on a new camera every three years.

There is still an app gap for me. Amazon's owned Pillpack still does not have an Android app.

Nobody. It's called a loan which Apple offers as part of the plan; they call it the Apple Upgrade Program.

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.

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.

> 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.

WeChat 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.

I 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.

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.

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

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

Are many people really locked into the apple ecosystem. Most apps that people here in the UK use are cross-platform too...

The 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.

Hmm... 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.

But in UK, there is not too many alternative phones, like Huawei, OPPO/vivo, Xiaomi. All those local players in China are based on Android, but still provide customized OS with unique features.

Huawei and Xiaomi phones are both available in the UK, along with the usual Samsung/Sony/Nokia, etc options.

But they are not UK's local manufactures. They are same as Apple as foreigner brands.

As a UK counterpoint, most of my friends and family (at least 15 people) use iPhones and iMessage/FaceTime is a major reason for sticking to the Apple ecosystem for us.

To add to this, if you travel to China, find someone ahead of time that you can prearange to send USD to in exchange for red envelopes in WeChat. Getting it setup with any of your own banking is a royal PITA, and many places only accept wechat payment or alipay.

Do you know of any good analysis, reports, discussions about the rise, impact, and influence of WeChat?

no, I don't see we are in Europe locked in apple ecosystem, we use WhatsApp/messenger over here, nobody really user imessage, seem like some protection of american using archaic SMS or imessage

as for WeChat again wrong, THE map app it's Baidu maps, for shipping you have Taobao and JD, not WeChat, same for watching TV shows, same for short funny videos, same for other social stuff, same for games

you are overstating significance of WeChat, yes it has monopoly in messaging and social networking plus significant majority in payments over Alipay but that's it, other uses drop a lot and don't hold so during foothold over other apps

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.

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.

I 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.

This 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).

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.

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.

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).

> 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.

Sales for Chinese competitors are not down though...

Correct. Iphone does nothing. If Huawei could get into America it would take over.

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.

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.

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?

And what if the Apple phone is better still than an Android 4 generations “ahead”?

And people complain iPhone buyers don’t look past marketing...

It'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.

Sure, but that is a different explanation than the demand for the new models is down, which is what one of the major narrative's seems to be over the last 24 hours.

The iPhone 7 was a big tipping point in performance and capability.

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.

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.

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

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.

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.

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…

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...

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.

Do you still use a tablet? What laptops do you like?

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)

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.

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.


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

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.

SE isn’t plastic

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

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.

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.

And 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.

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.

$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.

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.

You'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.

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.

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.

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

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