Is Apple Losing in This Crucial Market?

China

Apple’s (NASDAQ:AAPL) third-quarter results revealed that its revenue in the greater China market fell 14 percent from the same quarter last year and declined 43 percent from the March quarter this year, Reuters reports. Although company CEO Tim Cook said in a conference call with investors that “it’s not totally clear exactly what had occurred,” some analysts are now wondering if this revenue decline indicates future trouble for Apple’s fortunes in this crucial emerging market.

Rival smartphone maker Samsung (SSNLF.PK) has secured a 19 percent share of the greater China market, or more than double Apple’s 9 percent share, according to IDC data cited by Reuters. Although Samsung has the advantage of having been involved in the China market longer than Apple, it also benefits from its wide variety of smartphone models in different price ranges.

Although Apple products have a certain cachet with Chinese consumers, many of them cannot afford the premium-priced iPhone. However, Samsung provides both high and low-end smartphone models, which has allowed the Korea-based company to become deeply entrenched in the Chinese market.

Apple’s elegant but simple iPhone design may even be a weakness in the Chinese market, according to RedTech Advisors’s Michael Clendenin, who spoke to Reuters: “The Chinese just love features. They want their phone to have 50 different things that they’re never going to use. Apple just doesn’t play that game. Unfortunately, if you want to hit the mainstream market in China, and you want a lot of market share percentage points, you have to offer the Swiss army knife of cellphones.”

Apple also faces increasing competition from smaller, low-end smartphone makers. According to data from market research firm IDC, the largest year-over-year increase in the smartphone market came from the China-based Lenovo (LNVGY.PK), which had a 130.6 percent increase in shipments in the past year. Much of this growth can be attributed to sales in its domestic market. Meanwhile, Apple’s year-over-year growth rate of 20 percent was the lowest of all the top five smartphone vendors.

Similarly, China-based ZTE (ZTCOY.PK) achieved 57.8 percent growth due to its sales in the Asia Pacific region. IDC also notes that 44.8 percent of the overall shipment volume in the second quarter of 2013 was attributable to smaller vendors like Huawei, which saw double-digit growth thanks to sales in the emerging markets of India and China.

Despite its recent setback, Apple may soon be gaining a larger portion the greater China market. Apple is widely expected to unveil a mid-range plastic iPhone this fall that could help it establish a greater footprint in the world’s most populous country.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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