Tim Cook Won't Admit It, But Apple Is Losing Relevancy in China

With the iPhone X described as the biggest step forward for smartphones since the original iPhone, the release of the special-edition device was supposed to be a watershed moment for Apple AAPL. The Cupertino-based the behemoth would reclaim its status as the top smartphone trend setter, and its competitors would fall back in line once again.

But the iPhone X never made that kind of impact. During the company’s fiscal first quarter, Apple sold about 77.32 million total iPhones, down about 1% year-over-year and well below our consensus estimates (also read: Apple's First-Quarter iPhone Sales Drop 1%, Miss Estimates).

Apple’s decision to dual announce the iPhone 8 and iPhone X was considered a gamble at the time, and given its sales figures in the ever-important holiday quarter—along with the myriad of reported production issues related to the X—that gamble does not seem to have paid off.

Analysts and investors were quick to point the finger at a number of causes for the iPhone X’s weak performance, but the prevailing theory is that the $1,000 smartphone simply costs too dang much.

More specifically, the higher-priced device does not seem to be making an impact in some of Apple’s key international regions, including Greater China. That point was hammered home in a recent report from The Wall Street Journal, which argued that the growing number of domestic competitors in China means shoppers in Asia’s largest markets are less willing to fork over more cash for iPhones.

“People don’t have to stretch their budget to buy a top-end [smartphone] anymore,” IDC analyst Kiranjeet Kaur told WSJ. “[Chinese vendors] now boast features which compete with the top-end in the market.”

The report goes on to highlight the fact that Apple’s market share in China has slipped from 13% in 2015 to just 8% today. The iPhone maker’s market share in India has remained a stagnant 2% since 2013, and its share of the Indonesian smartphone market has slipped to 1% from 3% in 2013.

Meanwhile, Apple’s competitors in the region—including Chinese firms Xiaomi, Oppo, and Vivo—have all gained market share in these major Asian markets over the past several years.

But up to this point, Apple has been hesitant to admit that it is losing relevancy in its Greater China region. In the company’s most recent earnings conference call, CEO Tim Cook mentioned that he was “very happy to generate double digit revenue growth for the second quarter in a row” in Greater China, neglecting to clarify that this is likely due to the iPhone X’s higher price tag—and ignoring the company’s slipping market share altogether.

Cook would later field a question centered specifically on the fact that Apple’s sales in China seemed sluggish on a quarter-over-quarter basis when considering the timing of the iPhone X release. Citing valid points about the length of the quarter and the growth of the iPad and Mac in the region, Cook ultimately concluded that he “could not be more pleased” with how Apple is doing in China right now.

Of course, no one expects a top tech CEO to be particularly critical of their company’s performance all the time, but Cook’s overt optimism on this subject is curious. Is it possible that Apple management is out of touch, or is the company simply dodging legitimate concerns about its relevancy in China?

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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