Dominates high end, but closed ecosystem, high prices hold it back
U.S.-based handset producer Apple Inc still sees "incredible momentum" for its products in the Chinese market, CEO Tim Cook said in an earnings call Tuesday U.S. time, but analysts said Wednesday that as the Chinese smartphone market in big cities is reaching saturation, sales of Apple's products in China may be challenged.
The Chinese smartphone market in big cities is reaching saturation and new purchases will be mainly from lower-tier cities or rural areas in the next couple of years. In those markets, people remain reluctant to buy pricey products like iPhones, which could potentially pose a problem for Apple, Zhang Yi, CEO of iiMedia Research, which is based in Guangzhou, capital of South China's Guangdong Province, told the Global Times Wednesday.
But Zhang is optimistic about Apple's short-term performance in China.
His comments came after Apple reported a strong performance in China, as the total revenue in China, Apple's third-largest market, rose 14 percent year-on-year to $18.4 billion in the fiscal quarter ended December 26, 2015. That compared with a drop of 4 percent in the Americas and growth of 4 percent in Europe, according to the results announced Tuesday.
The company sold 74.8 million iPhones in the quarter, below expectations and up a slight 0.4 percent year-on-year.
But iPhone sales grew 18 percent in the mainland during the quarter, the company said.
Though the slowdown in the Chinese economy has been a concern for many analysts, Cook said during the earnings call that Apple remains "very bullish on China and doesn't subscribe to doom and gloom predictions." Cook also said that Apple would bring its Apple Pay system to the Chinese market in the coming year.
"As long as China's middle class is still expanding, Apple's rapid growth is guaranteed," Liu Dingding, a senior analyst at Beijing-based Internet consultancy Sootoo, told the Global Times Wednesday, adding that the iPhone is still the absolute first choice for China's middle-class shoppers.
The nation's smartphone market has grown more crowded in the past two years, with the rise of domestic handset makers such as Xiaomi Inc and Huawei Technologies Co. They have gained a big share in the lower-end smartphone market and are aiming to upscale their products.
In China, sales of the iPhone still lag those of models offered by Xiaomi and Huawei, but Apple still has no rival in the high-end segment - an advantage that is set to persist, analysts said. Samsung, which used to be a competitor for Apple, has lost substantial share in the high-end segment in China in the past two years.
Almost half of the iPhones that Apple sold in China in the quarter were to people who were buying their first iPhone, according to Cook. Also, the distribution network is expected to further expand. The company has 28 stores in China and is on target to have 40 by mid-2016, Cook said.
Liu from Sootoo noted that high prices and Apple's "closed ecosystem" are major factors hindering its growth in China and said that the company should offer cheaper models if it wants to maintain its growth momentum.
In terms of the operating system, there has been some improvement, Liu noted. Software that previously was incompatible with Apple's operating system now can be installed on iPhones.
For instance, some homegrown input methods can be used in the iOS operating system now.
