Apple Inc.’s market cap has tumbled by $463 billion from its $1.1 trillion high in October last year. The main reason cited behind this fall has been the slow down in the Chinese economy. This seems to be an easy get out for an American company which records most of its sales in the US. China did however represent roughly 20% of Apple’s revenue last summer.
But is there more behind this than a slowing economy? The Chinese market is becoming congested. Apple is having to compete against some very good phones. In particular the Huawei brand, which is now the 2nd largest phone maker in the world. Huawei models are far cheaper than their Apple equivalents but still pack the same technological punch.
Apple remains a premium brand in China but there comes a point when the price of the premium product reaches such a high level that consumers are willing to switch to less premium brands in order to save money. With Apple’s latest release at RRP £1,449 this certainly could be the case.
An important caveat to the mobile phone market in China is the secondary application market behind it. In the US and European markets a big selling point for Apple products is the access to the App Store, iTunes, Apple TV etc – the phone is merely a gateway to the whole Apple ecosystem. In China this is not the case. The app market is dominated by Tencent’s WeChat which performs the same functions of many popular western apps rolled into one application. WeChat works across all operating systems making Apple’s ecosystem less important in China.
Perhaps Apple may make a comeback later this year. I think a lot of that will be riding on the success of any China-US trade talks. However, it may want to start taking a closer look at its pricing strategy. Yet, I doubt Huawei are going to be given a easy ride in the US market – so Apple does have some time to figure things out.