Apple's struggles in China persist as revenue slides

Apple's revenue in China

Apple Inc continued to struggle in China in its most recent fiscal quarter, with declining revenue from the market. Though iPhone sales might never return to its glory days because of rising competition in the market, there is still huge potential for the technology giant in China services.

The California-based company on Tuesday reported yet another quarter of revenue decline from China, though the drop eased slightly from the falls in previous quarters.

In its fiscal third quarter, which ended on July 1, Apple's revenue generated from the market, including Chinese mainland, Hong Kong, Macao and Taiwan dropped 10 percent from the same quarter last year to a little over $8 billion. In the previous two quarters of 2017, Apple revenue from the areas dropped 12 percent and 14 percent, both on a year-on-year basis.

Though in its filings on Tuesday, Apple did not disclose sales numbers specifically for the Chinese market, experts said that a sluggish sales performance was what really dragged down the company's revenue in the market.

"The decline in revenue is no doubt because iPhones are facing much fiercer competition from domestic smartphone brands," Wang Yanhui, head of the Shanghai-based Mobile China Alliance, told the Global Times on Wednesday. "Domestic companies are rising fast in the market."

A recent report from consultancy Counterpoint Research showed that Apple's market share in China has dropped to fourth from third last year, as domestic companies such as Huawei, Vivo, OPPO and Xiaomi topped the sales ranking, collectively capturing 69 percent of the market.

"Apple phones' advantage in cost performance is just not there anymore," Liu Dingding, a Beijing-based independent technology analyst, told the Global Times. Liu said that domestic companies are not far behind Apple in terms of either technology or design "and their prices are just about half of those of iPhones."

Liu further noted that there is "almost no chance" for Apple to regain share in the Chinese smartphone market in the near term because domestic brands have covered most segments of the market from premium to medium- and low-end smartphones.

"Even if they come up with great, groundbreaking innovation on the next iPhones, which didn't happen with the latest models, the momentum is just gone," she said.

However, Apple's struggle in iPhone sales is hardly a reason to become completely bearish about the company's business potential in China, because after all, the company is shifting and so is the market, the experts noted.

"Apple is not just a smartphone maker anymore, it's becoming a services provider," Liu said. "Smartphone apps and other services happen to be among the fastest-growing segments of the market."

Apple's financial results in the latest quarter showed that the company has become increasingly dependent on revenue from services, including digital content and services, Apple Pay and licensing.

Revenue from services grew 22 percent year-on-year in the quarter, significantly higher than the mere 3 percent growth in iPhone sales. CEO Tim Cook said in a conference call on Tuesday that Apple's services business is now as big as a Fortune 100 company.

That and strong performances in iPad and Mac sales in the quarter lifted the company's overall growth to 7 percent year-on-year.

Experts said that as Apple continues to shift focus to services, China offers a great opportunity. The company generates a great amount of revenue through in-app sales, according to experts.

"Think about it: Apple charges 30 percent on all in-App purchases. That's a lot of easy money," Liu said. "There are millions of iPhone users in China and they spent billions of dollars online each year for things like games."

Apple is also pushing for its services such as content offerings in China, despite tight government regulations and a market saturated with domestic providers.

The company showed a willingness to work with Chinese regulators recently as it took down unregulated VPN apps from its App Store, drawing criticism from some Western media outlets for agreeing to Chinese government censorship demands.

Cook on Tuesday dismissed such criticism, saying that Apple simply follows Chinese laws as it does "wherever we do business."