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Queueing in front of Apple stores on the day of a new model launch is a familiar ritual. However, the long lines that formed in China when the latest iPhones and watches went on sale on Friday are more remarkable than usual. These lines pose a challenge for Apple’s local competitors.
At first glance, Apple’s competitors have an advantage. The release of the newest iPhone 15 comes at a difficult time for the company in China.
Rival Huawei has recently introduced two powerful 5G-enabled handsets: its flagship Mate 60 Pro and the foldable Mate X5. Furthermore, the government is expanding the ban on iPhone use in certain agencies and state-owned enterprises. Employees in central government bodies have long been advised to use locally manufactured devices.
The stakes are high as China constitutes about one-fifth of Apple’s sales. There are risks due to tensions with the US over technology and the propensity of Chinese consumers to support domestic brands out of patriotism.
However, Apple’s market share in China has been surprisingly strong, accounting for approximately one-fifth of the local market. This is on par with Oppo and Vivo, the two most popular smartphone brands by market share, and one-third higher than local electronics group Xiaomi.
Even more noteworthy, Apple experienced the highest sales growth among all brands in China during the second quarter. This achievement is despite iPhones being more expensive than local alternatives and the absence of new model releases.
Xiaomi’s shares have a forward earnings multiple of 23, indicating a discount compared to global peers despite a 24% increase in the past year. Xiaomi has launched a premium line to differentiate itself from price wars among local manufacturers. However, profit margins remain razor-thin, barely surpassing 2% last year.
No domestic brand has yet produced a premium model that poses a serious challenge in the global high-end phone market. Additionally, iPhones are seen as a symbol of status among China’s youth. Until this perception changes, it is unlikely that government restrictions will loosen Apple’s dominance in China.
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