Apple grapples with jaded Chinese customers, intense competition amid upcoming iPhone launch

People walking past an Apple store in Beijing, on Aug 3, 2017. PHOTO: AFP

BEIJING (BLOOMBERG) - Apple's new iPhones are expected to come with vibrant full-screen displays, wireless charging and other cutting-edge technology. But consumers in China can get those features on other devices already - and without the sticker shock.

Shoppers in the world's biggest mobile market are accustomed to getting the latest technology with their Huawei, Oppo and Xiaomi handsets. That makes it harder for Apple to convince jaded customers that marrying such attributes with its own software is worth the much higher price tag.

That is a problem for Apple in the market that matters most to the Cupertino giant beyond its home country.

While it sticks to a global template that has served it well, local vendors have become adept at technology design while tailoring phones to local tastes, such as with dual SIM capability.

In a show of confidence, Huawei Technologies, Xiaomi and likely Vivo - far from front-running or avoiding the iPhone the way movie studios juggle summer tentpoles - are tackling the US company head-on by timing new products around the publicity avalanche sure to engulf Apple's Sept 12 launch.

After six straight quarters of falling sales in Greater China and a share-price rally fuelled by expectations for the 10th-anniversary device, the stakes are enormous.

"The challenge comes from Vivo, Oppo and Huawei, they can replace Apple in high-end markets priced around US$500 (S$668), even as Apple remains dominant in the ultra high-end US$600 plus segment," said analyst Kiranjeet Kaur at industry consultancy IDC. "We don't expect big growth as China's market is now very saturated. The biggest demand for the new iPhone will come from the replacement market."

Apple has a lot riding on the biggest re-design of the iPhone in the post-Steve Jobs era, with its new flagship tipped to cost about US$1,000.

On Tuesday (Sept 12), it will lift the lid on three new models of the device that ushered in the modern smartphone age, alongside a higher-powered Apple TV and a watch that can connect to LTE cellular data networks, Bloomberg has reported.

While users wait for the new hardware, Apple has previewed its iOS 11 operating system which has added features for Chinese users. That includes a photo app that allows scanning of the near ubiquitous QR codes that drive the country's mobile payment systems, a keyboard that makes Chinese characters easier to input and a new mapping app that shows traffic camera locations.

The iPhone remains the world's best-selling phone model and continues to win praise for Apple's hallmark fusion of software and hardware. Its iOS ecosystem has locked in millions who have built up valuable music and movie libraries. There is the possibility of a surprise killer feature beyond the usually well-telegraphed bells and whistles. And Apple's "best, not first" mindset has served it well in the past.

"Apple hasn't done a big design change since 2014 but Huawei and Vivo kept releasing new devices," Ms Kaur added. "To many Chinese, having the latest iPhone is also a social status symbol."

Yet now more than ever, China boasts a coterie of technology champions that have already won over consumers, using not just tricked-out gadgets but also faster product updates to push Apple to fifth place last quarter.

The company's revenue in Greater China, which includes Hong Kong and Taiwan, fell 10 per cent in the latest quarter - the only region to experience a year-on-year decline. While revenue was little changed in mainland China, Counterpoint Research has put the iPhone's share of the over US$600 device market at 80 per cent and sales are growing in urban areas.

Xiaomi, showing signs of bouncing back from its worst shipment declines in its seven-year history, is going to unveil the Mi MIX 2 a day before Apple's event. The new phone, a second-generation to a model developed with designer Philippe Starck featuring a ceramic body and bezel-less screen, takes it deeper into Apple's high-end territory.

The MIX series, of which last year's version sold for 3,999 yuan (S$827), encapsulates Xiaomi's intention of exploring new designs, said Mr Donovan Sung, product and marketing director of its international expansion unit.

"Xiaomi has always relentlessly pursued technological innovations, and the Mi MIX product line is where much of that effort is concentrated," Mr Sung wrote in an e-mail.

Huawei - a company that declared its intention of supplanting Apple and Samsung at the top of the mobile food chain -debuts its full-screened Mate 10 next month (October). The last iteration of its flagship sported cameras designed with Leica; this one is expected to employ an in-house developed multicore Kirin 970 processor.

"The dual-camera technology, which was first introduced by Huawei, is now a must-have feature adopted by major players across the globe," rotating Chief Executive Officer Guo Ping told Bloomberg Television. "Apple is an outstanding company that we respect, but Huawei also has a lot of innovations."

Even Vivo - the smallest player of the group, is teasing the silhouette of a new thin-bezel device, presaging an imminent release though it declined to comment on details.

With supply of new iPhones expected to be tight in the early going, Apple's Chinese rivals may jump at the chance to lure buyers away. Their tool-kits include features aimed squarely at local users, from dual SIM devices that support multiple phone numbers to outsized memory and selfie cameras.

"The growth of Chinese brands is an important trend which no player in the mobile ecosystem can ignore," Counterpoint Research associate director Tarun Pathak wrote in a report this week. "Huawei, Oppo, Vivo and Xiaomi have successfully gained access to key supply chain partners, which has allowed them to launch designs with bezel-free, full displays, augmented reality, in-house chipsets and advanced camera features, that have kept them toe-to-toe with rivals."

They may also appeal to nationalistic sentiments in a country on the ascendancy. And it does not help Apple that the US company has taken a drubbing in the public eye.

Apple has faced the ire of Chinese consumers and been on the receiving end of official crackdowns. Its iTunes Movies and iBooks were shut down last year by regulators. In 2013, it was forced to apologise after powerful state broadcaster CCTV criticised customer-service standards.

Canalys estimates that Apple's Chinese smartphone shipments will grow a mere 1.4 per cent to 22.5 million units in the second half. The top-shelf iPhone's rumoured US$1,000-plus price tag may end up pushing iOS fans toward local alternatives, because even well-heeled buyers are price-sensitive, said analyst Jia Mo at Canalys.

"Not every high-end user in China are willing to accept a price tag above 8,000 yuan. Actually, there are many who can't afford it," he said.

Join ST's Telegram channel and get the latest breaking news delivered to you.