Apple needs China more than China needs Apple

Apple needs China more than China needs Apple. Image: X Screengrab Apple has slipped to fifth place in China’s cellphone sales ranking, outsold by local rivals Huawei, OPPO, Honor and vivo.

Chinese cellphone are closing the performance gap with Apple’s iPhone while US government harassment of Chinese tech companies has made buying local a source of national pride for some.

Chinese authorities have also imposed local restrictions on Apple, including bans on using iPhones at certain state agencies and state-linked companies in at least eight provinces due to security concerns.

Since last December, employees at the said agencies and firms, including in prosperous coastal regions, have been encouraged instead to purchase and bring local cellphone brands to work. Earlier this month, Chinese regulators ordered Apple to stop carrying Meta’s WhatsApp messaging service and Threads social media platform from its China app store.

The impact of those bans on Apple’s declining local sales is difficult to disaggregate. Apple has slipped in local rankings despite using more, not fewer, Chinese suppliers and Apple CEO Tim Cook’s frequent visits to China to tout his company’s commitment to China’s market.

Apple’s cellphone unit sales dropped 25% year-on-year in the first quarter of 2024 while its market share fell from 20% to 15% over the same period, according to technology market research organization Canalys.

Sources: Data from Canalys, chart by Asia Times

Huawei’s sales were up 71%, lifting its market share from 10% to 17%. OPPO and vivo also lost market share, though not as much as Apple. Honor, a discount brand spun off from Huawei, increased its share from 14% to 16%. Xiaomi ranked sixth, close behind Apple.

Sources: Data from Canalys, chart by Asia Times

Counterpoint Market Pulse’s data is slightly different but also shows significant declines for Apple and substantial gains for Huawei.

Apple’s supplier list for last fiscal year shows Chinese companies have increased their lead, rising to 30%. Taiwanese, American and Japanese companies continued to rank second, third and fourth, though all their numbers declined.

The list includes 187 companies which, according to Apple, accounted for 98% of the company’s direct spending on materials, manufacturing and assembly in fiscal 2023, which ended last September.

The number of Vietnamese and Thai companies on the list increased in line with the general exodus of low-cost assembly operations from China to Southeast Asia.

Nikkei Asia’s analysis shows 40% growth in the number operating in Vietnam to 35 but 13 of them are actually Chinese suppliers.

The number of South Korean companies on the list declined while the number of European companies rose, but their shares of the total were each less than 10%. The number of Indian companies was unchanged at 14.

More surprising, perhaps, is that Apple’s list shows that more than 80% of the company’s suppliers have a presence in China.

“There’s no supply chain in the world that’s more critical to us than China. We’ve been building up and investing more and more,” Apple CEO Cook told China Daily during his trip to China in March. “Today’s factories are so much more modern. And in 10 years from now, we will keep advancing.”

DigiTimes identified eight new recent Apple suppliers in China, among them Baoji Titanium Industry, thermal interface and graphite supplier Jones Tech, ultra-fine wire maker Zhejiang Tony Electronic, printing and packaging company Paishing, LED maker San’an Optoelectronics and precision component and manufacturing service provider Shenzhen BSC Technology.

Apple does not simply add suppliers to curry favor with the Chinese government: DigiTimes also noticed that four Chinese companies had been removed from its list of suppliers. And Apple is actively expanding production operations in Southeast Asia and India.

But it is clearly not reducing its involvement with China, where most of its manufacturing is still done and it generated 17% of its revenue in the fourth quarter of 2023. How it will deal with its accelerating loss of market share in China, however, is another story.