Every week, the ChinaCache blog will bring to you one translated article that was originally published in Chinese. This week, we bring you an insightful look into the Chinese mobile phone market. The original article was published here on May 17th, 2016.
Yesterday, Apple CEO Tim Cook joined Didi Chuxing’s CEO Liu Qing in Beijing for an Apple Developer conference (Editor's note: Didi Chuxing is China's equivalent of Uber). This is Cook’s eighth visit to China. The backdrop to this visit is filled with anxieties due to Apple’s inauspicious 2015 earnings. Revenue and profits are both down for the company, and Apple recently encountered political roadblocks in its ebooks and movies business in China.
Cook’s Eighth Visit to China
Cook stated yesterday that Chinese developers have already netted in more than $7B USD through App Store sales. More astoundingly, half of those sales happened in the past 12 months. Apps made by Chinese developers have been downloaded by users in close to 160 countries across the globe. Cook hopes that Apple Developer will increase the interactive aspects of App Store’s reviews section, thus allowing developers to directly communicate with users.
This is Cook’s eighth visit to China. Unlike his predecessor Steve Jobs, Cook sees cultivating the Chinese market as very important. In March of 2012, Cook made his first visit to China in his then-new capacity as CEO, during which he was personally welcomed by then-Vice Premier of the State Council Li Keqiang. In his next three visits, Cook mostly focused on collaboration talks with major telecom carriers.
It is worth noting that Cook made his appearance with Liu Qing, whose company Didi just received a $1B investment from Apple. Cook further pointed out that Chinese government’s initiative of “Internet +” and policies incentivizing innovation are both foundations for rapid growth. In Q2, Apple will be opening more retail locations in China, hoping to reach 40 by the end of summer.
Saving Apple from Its Fall from Grace
Since 2013, Cook has averaged two visits to China per year, sometimes with the goal of saving Apple’s sales in China. In July of 2013, Apple’s financial report reflected that its sales in China dropped by 14%. During Cook’s subsequent visit to China, he met with then-Chairman of China Mobile Xi Guohua. They reached an agreement in the following year, which greatly expanded Apple’s marketshare in China. Cook thus successfully saved Apple’s market.
The purpose of Cook’s current visit, sources say, is to continue communications with the Propaganda Department as well as the State Administration of Press, Publication, Radio, Film, and Television (SARFT for short). In September of 2015, Apple launched Apple Music, iTunes Movies, and iBooks in China. However, by April of 2016, many users discovered that all attempts to purchase movies or books through Apple failed. Sources say that it was SARFT who gave the orders to shut down services in iTunes and iBooks.
Although Apple is most famous for its consumer electronic products, the only segment that has experienced a continuous 10+% growth over the past eight years is its App Store and iTunes segment. During Q1 2016, this segment has risen to the second most important division, standing at 12% of total revenue.
To Apple, the Chinese market is an important growth sector. Apple management projects that, according to past revenues, the Chinese market will soon overtake the American one to become its largest market. Hence, aside from rescuing Apple’s service sectors, Cook’s trip is also primed to rescue the gradually slipping consumer electronics market shares.
Data shows that in Q1, Apple’s gross revenue in Greater Asia slipped by 26% YoY from 2015, while mobile phone shipments decreased by 15%. Faced with these increasingly austere statistics, Cook had no choice but to personally visit China.
Mr Hong Shibin, a member of the Internet Society of China, opined that aside from the above reasons, Cook’s visit to China may also have to do with Apple TV’s expansion into China. Before this, there have already been hints that Apple plans to expand this sector into China. At the end of last year, the Chinese Apple Store accidentally leaked news regarding Apple TV. Although this news item was quickly deleted, it nonetheless gave many Apple fans hope. It made sense at the time, since putting all hopes and efforts on the smartphones is not a long lasting solution. There are many reasons that Apple TV never successfully made it into China, some of them including government regulations, copyrights of contents. During this visit, Cook may be communicating with relevant agencies about this matter.
iPhone 7 or a New Engine
It should come as no surprise that iPhone sales are dipping. Consumer electronics expert Liang Zhengpeng pointed out that Apple’s biggest weakness in recent years is still the product itself. Compared to classics like the iPhone 4S and 5S, iPhone 6S and SE all lack innovations.
Aside from its commendable 3D Touch technology, the iPhone 6S is not meaningfully different from the iPhone 6. One might even argue that it is more flawed than its predecessor. The iPhone SE, meanwhile, is simply a smaller version of the 6S.
During the release of the iPhone SE this year, some specialists predicted that Apple is saving its most innovative updates for iPhone 7’s release this September. Rumor has it that iPhone 7 will have a borderless touchscreen, front-facing camera, Touch ID and other technologies “embedded” inside the screen. In terms of battery life, the iPhone7/7 Plus are also expected to have big upgrades. Batteries are expected to fall within the 1750-1850mAh and 2850-3000mAh range, respectively. Coupled with the brand new iOS 10, overall battery life is expected to increase by 20-30%. Cook once expressed that Apple’s new releases will re-ignite the Chinese market.
Mr Hong Shibin further added, “If the new generation of iPhones include enough innovations, it will be able to attract both current Apple users as well as users of other smartphone makers. It will be able to reverse Apple’s current slump.”
Timeline of Tim Cook’s Visits to China
March 2012 - Cook, in his new capacity as Apple’s CEO, made his first visit to China
January 2013 - Cook met with MIIT chief Chang Miaowei
July 2013 - Cook met with then-Chairman of China Mobile Xi Guohua
January 2014 - Cook visited for the launch of China Mobile’s iPhone 5S/5C 4G
October 2014 - Cook met with Vice Premier Wang Kai
May 2015 - Cook promoted Apple’s new environmental initiatives in ChinaOctober 2015 - In addition to climbing the Great Wall, Cook announced two environmental initiatives