Lauren Miller

July 26, 2024 - 07:15 am

Apple’s Declining Market Share
Apple's market share in China has been on a steady decline, dropping to 14% in the second quarter from 15% in the first quarter and 16% a year earlier. This reduction in market share signifies a challenging period for Apple in the Chinese market, where local brands are rapidly gaining ground. According to Canalys research analyst Lucas Zhong, this marks the first time in history that domestic vendors dominate all the top five positions in the Chinese smartphone market. The competition from local brands has intensified, pushing Apple out of the top five smartphone vendors' list in China.

Importance of Localization and AI Integration
Canalys highlighted that the localization of Apple’s Intelligence services in mainland China will be a crucial move in the next 12 months. As Chinese brands aggressively incorporate generative AI into their products, Apple's ability to adapt to local preferences and technologies will be vital for regaining market share. The competitive edge of Chinese brands lies in their deep collaboration with local supply chains and their strategies for high-end products, which have significantly enhanced hardware and software features.

Impact of Domestic Brands
Apple was edged out of the top five smartphone vendors in China in the second quarter due to stiff competition from domestic brands such as Huawei. The Canalys report indicated that Apple's market share shrank from 15% in the first quarter to 14% in the second quarter, and it was down from 16% in the same period a year ago. This decline in market share resulted in Apple dropping to the sixth spot with about 9.7 million in shipments, according to CNBC calculations. This shift is notable as Apple was the third-largest smartphone vendor in the second quarter of the previous year.

Strategies and Market Dynamics
Lucas Zhong from Canalys pointed out that it is the first quarter in history that domestic vendors dominate all the top five positions. Apple’s shipments have been declining since the first quarter when they dropped 25% year on year to 10 million units. This decline is attributed to the strategic moves of Chinese vendors in the high-end product segment and their collaboration with local supply chains, which are paying off in terms of enhanced hardware and software features. For instance, Honor’s latest Magic V3, which leverages GenAI, has significantly improved the user experience of foldable devices.

Challenges Facing Apple
Apple is facing a “bottleneck” in the Chinese market as it aims to stabilize retail prices and protect the margins of channel partners. This challenge is compounded by the aggressive strategies of Chinese brands that are making significant inroads into the high-end market segment. The localization of Apple’s Intelligence services in China will be an essential move to counter the advancements made by domestic brands incorporating generative AI into their products. The competitive landscape in China is shifting rapidly, and Apple's ability to adapt to these changes will be crucial for its future success in the market.

Dominance of Chinese Brands
From April to June, Chinese brands have shown strong performance, with Vivo reclaiming the top spot with a 19% market share and 13.1 million units shipped. This success was driven by robust offline and online sales during the “618” e-commerce festival. Oppo maintained its second place with 11.3 million units shipped, buoyed by the launch of its new Reno 12 series. Honor came in third with 10.7 million units shipped, marking a 4% year-on-year increase. Huawei, which had not made it to the top five a year earlier, secured the fourth position with a 15% market share and 10.6 million shipment units, driven by the launch of its Mate 60 smartphone.

Xiaomi’s Position and Market Growth
Xiaomi took the fifth spot, with the buzz from its first electric car, the SU7, contributing to solid sales of its K70 and flagship 14 series. Overall, the Chinese smartphone market grew by 10% year on year in the second quarter, with shipments exceeding 70 million units, according to Canalys. This growth highlights the dynamic and competitive nature of the Chinese smartphone market, where domestic brands are making significant strides and reshaping the market landscape.

Conclusion and Future Outlook
The decline in Apple's market share in China underscores the increasing competition from domestic brands that are rapidly gaining dominance. The localization of Apple's Intelligence services and the integration of generative AI into its products will be crucial for Apple to regain its footing in this highly competitive market. The success of Chinese brands like Vivo, Oppo, Honor, Huawei, and Xiaomi demonstrates the effectiveness of their strategies and their ability to meet local consumer demands. As the Chinese smartphone market continues to grow, Apple will need to adapt and innovate to stay relevant and competitive.

In summary, Apple's shrinking market share in China, down to 14% in the second quarter from 15% in the first quarter and 16% a year earlier, highlights the increasing dominance of domestic brands. The localization of Apple's Intelligence services and the incorporation of AI technologies will be critical for Apple to compete with Chinese brands that are aggressively enhancing their products. The dynamic nature of the Chinese smartphone market presents both challenges and opportunities for Apple as it navigates this evolving landscape.