Why Apple Has a Massive iPhone Problem in China

iPhones are getting more expensive by the year – a direct result of several factors like Apple’s adoption of increasingly more powerful and innovative technologies, use of more premium build materials like stainless steel and advanced components like $80 OLED display panels.

And yet, while the company publicly acknowledged last week that iPhone sales are “in a slump” – due to the Chinese yuan weakening in value against the U.S. Dollar, and current iPhone owners opting to keep their devices longer than ever before – a new Bloomberg report interestingly details the much broader scope of Apple’s ‘China problem’ which goes far and beyond the unresolved U.S. China Trade wars.

A Costly Mistake?

While Cook attempted to justify Apple’s first quarterly revenue forecast downgrade in over 20-years, in his impromptu memo to investors last week, the Chief Executive ultimately failed to acknowledge the biggest issue playing into weak iPhone demand in China: Most people simply can’t afford one.

Apple’s top-of-the-line iPhone XS Max starts at 9,599 yuan ($1,400) in China, Bloomberg reports. And yet, a plethora of technologically similar (if not more advanced) devices from regional smartphone makers like Huawei, Oppo and Vivo are available for as little as 4,000 to 5,000 yuan ($583-$729), even undercutting even the iPhone XR at 6,499 yuan ($949) in the country.

As research conducted by Chinese head-hunting firm, Zhaopin Limited, cited in Bloomberg’s report, indicates the “average monthly white-collar salary” in China was ~7,850 yuan per month as of 2018 — meaning that most of Apple’s latest iPhone models cost more than a full month’s salary for most of China’s working-class.

“It’s two-third what’s happening in China and one-third Apple’s pricing,” said veteran analyst and Loup Ventures founder, Gene Munster, noting that the average iPhone price “jumped 23 percent” upon the company’s release of its 2018 offerings.

“I don’t think it’s an innovation issue. It’s a pricing issue.”

Learning Curves

Sadly, Apple’s stock (NASDAQ: AAPL) has been battered and bruised in recent weeks as a result of reports suggesting that its latest iPhone models aren’t selling as well as expected, which the company confirmed last week in its historic memo to investors.

When announcing his company’s revenue forecast downgrade, Cook even acknowledged that the Chinese smartphone market (which he’s previously referred to optimistically as a “hypermarket”) is “currently contracting,” while confirming earlier reports that fewer Chinese consumers have been visiting the company’s retail stores in latter months.

Still, Apple isn’t quite ready to go down without a fight in China. And in its latest attempt to turn the tides, the company’s extended its U.S.-based iPhone trade-in promotion unto its Chinese customers, too, offering its 6.1-inch flagship [with trade-in of an iPhone 7 Plus] for just 4,399 yuan ($642).

Of course, only time will tell how Chinese consumers react to this offer. But with many other issues (with potentially far-reaching implications for tech companies) still unresolved between China and the U.S., Apple may need to start rethinking its strategy there.