Those sexy Samsungs: Why iPhones are no longer cool in China

November 30, 2012
November 30, 2012

After a long delay, China finally approved the domestic launch of the iPhone 5. Apple shareholders would expect this to be a major event, but signs are it won’t be.

According to technology research house Gartner, Apple’s share of the mainland Chinese smartphone market slumped to below 7% in the third quarter of this year. That was a big drop, down from 12% in the second quarter.

Things used to be so different. Less than two years ago, wealthy Chinese consumers loved Apple. But they are a fickle bunch, always looking for the latest cool brand to add to their collection. That used to be the sweet spot the iPhone inhabited. Now, Samsung sits there. And at the lower end, consumers are too price conscious for iPhones.

As a young woman posted on microblogging website Sina Weibo: “I wish I could have an iPhone 5 for my birthday, but my parents saved for months just to get me an iPod.”

While there are a growing number of middle-class Chinese, they are nowhere near as rich as middle-class Westerners. There’s no word yet on what the iPhone 5 will retail for in China but consider that the retail price for an iPhone 4S started at around $780 at today’s exchange rates. Meanwhile, Chinese internet firms including Baidu, Alibaba Group and Shanda have all launched smartphones this year costing under 1,000 yuan (US$160)

Apple now ranks sixth in China’s smartphone league, down from third place in the second quarter, according to Gartner. Samsung has been first for the last six months. Chinese manufacturer Lenovo, which sells cheaper products than Apple, is second. Sandy Shen, a Shanghai-based Gartner analyst, told Quartz she forecasts Lenovo will take the first spot by the end of 2013.

Apple may have lost market share because the iPhone 5 launch was delayed in China. But Shen thinks waiting consumers are actually few.

Apple’s real problems are market saturation, consumers not believing the iPhone 5 is much better than the 4S and high-end consumers being more attracted to what they perceive as Samsung’s superior hardware, Shen says.

The majority of people who should have an iPhone have already got one. And in terms of improvement between the 4S and the 5, its not so big. So people have been kind of disappointed. They are either happy enough with the iPhone 4 or the 4S, or looking for another brand.

On the shift to Samsung, Shen adds:

I’ve been observing high-end consumers who have been using iPhone for the last two to three years now looking to switch to Samsung products. These people are not price sensitive. They are always looking for the latest flagship product to add to their technology collection. They have a laptop, an iPad, an iPhone, and now they are going for the Samsung Galaxy S3 or the Galaxy Note.

Samsung probably has better hardware, Shen continues.

In terms of design and hardware specs,  the Samsung products are seen more sexy than iPhones. The Galaxy Note screen is bigger, for example. The S3 has a better display.

Research firm IHS has said the same thing about the S3’s superior display, though Apple enthusiasts dispute this.

Paul French, Mintel’s chief China market strategist, has a different take on why iPhones are becoming less popular with China’s brand-conscious wealthy. He says it has less to do with technical features, which he believes a lot of Chinese consumers do not show interest in, and more to do with being fickle.

Apple just isn’t really that cool anymore. Teenagers aren’t too interested in it. When I see people in Apple stores here, they tend to be late 20s and early 30s.

He adds:

Most Chinese people won’t be that interested in getting the new iPhone 5 because it has better this or that. I don’t think most Chinese people use their iPhones for the apps or the technology. Before, it was all just ‘look, I got an iPhone’, which people then just used for phoning and texting. I ask people what apps they have, and often they don’t have any.

What’s really popular across Asia right now, including in China, are the big phone-small tablet hybrids. Like the Galaxy Note but cheaper versions too. Teenagers especially are mad about these.

That is a source of hope for Apple’s iPad mini, then. But there are also small, cheap tablets on the Chinese market. A $99 dollar Chinese clone of the iPad mini, called the Goopad Mini, surfaced in China late last month, just days after Apple announced its latest innovation.

In China, as in most emerging markets, being neither cool nor cheap is a big problem. There isn’t much of a middle class or a middle ground.

Apple’s business in the country is still huge, representing 15% of its sales. In its last full year results, Apple reported it made a whopping $23.8 billion in China, a 79% increase from the $13.3 billion earned in 2011. But those impressive results masked the slowing quarterly trend that Gartner’s data has also picked up. Apple made $5.7 billion in China in its fourth quarter, the three months to September 29, which was a 28% drop from the $7.9 billion it made in the second quarter.

And while crowds of Chinese shoppers besieged Apple’s flagship Beijing store on the day the iPhone 4S was launched there—with some rioting and throwing eggs because the store opening was delayed—these may not have been eager consumers. Instead, they might have been what the Chinese media call “scalpers.” These are speculators who buy potentially scarce goods in bulk in the hope of reselling them at a premium later on.

French argues:

That’ll be because maybe about four years ago some people made good money buying up all the iPhones on day one and selling them for more than the retail price. In China, where everyone wants to make a fast buck, these ideas get around.

The question remains whether they’ll find buyers this time.

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