Has Apple Blown It in Asia?

Faced with big local challenges and hampered by fat margins, a bumpy road lies ahead unless it addresses omissions

It looks like we’re in for another round of anti-Apple stories in China. The recent past has seen tales emerging of several iPhone users being killed or maimed by electric shocks, explosions and other hardware-related catastrophes. Unfortunately for the Cupertino giant, however, this kind of negative publicity could pale in comparison to the bigger threat to its future success. The truth is that its iconic smartphones are not only less desirable than they once were, but most evidence is suggesting that major growth in the region will come at the low end of the market. So has Apple already blown it in Asia?

Let’s take a look at some of the hard stats first. There’s no doubt that south-east Asia and China are powering global smartphone growth today. Analyst Canalys said in its Q2 2013 report that the two countries with the highest year-on-year growth rates were India (129%) and China (108%). The ITU, meanwhile, says that more than half of all mobile subscriptions are now in Asia and is predicting that this year will see the region overtake Europe and the Americas combined when it comes to total number of mobile internet users. Market watcher GfK revealed in research back in May that the smartphone market across Singapore, Malaysia, Thailand, Vietnam, Indonesia, the Philippines and Cambodia expanded 14% in 2012 to top $11bn.

"South-east Asian consumers, especially those in the developing countries, are fuelling the exponential growth of smartphones as they switch over from their basic feature phone to the latest smartphone technology in their local market,” said GfK account director Gerard Tan at the time. “Growth in this region is primarily driven by affordable smartphones which averaged in the price range of $100–200.”

This is Apple’s major problem – how does a high-margin company which has historically made its money from selling expensive handsets at the top end, respond to the changing dynamics of the global smartphone market? Canalys found that both Samsung and Apple lost market share to Chinese vendors Lenovo, Yulong, Huawei, ZTE and Xiaomi, which now account for 20% of global shipments, up from less than 15% a year ago. Apple’s market share globally apparently fell to its lowest level since 2009.

Local heroes making life tough

Unfortunately for Cupertino, local competitors are now making cheap yet stylish Android handsets which better suit these low-end customers. In India, local player Micromax came second only to Samsung with an impressive 22% share of the market, according to Canalys. In China, meanwhile, Xiaomi’s recently launched Red Rice smartphone, selling for just $129, attracted over seven million pre-orders, with the first 100,000 handsets selling out in just 90 seconds.

Not only is the iPhone too expensive for Asia’s increasing number of budget-conscious smartphone customers but it’s also losing favour with its traditional fan base in Asia. Research from Taiwanese market watcher TrendForce in April found that over half of Chinese iPhone owners are thinking of switching to a Samsung Galaxy S4. The firm added the following ominous warning: “In the event that the Cupertino company is unable to come up with something remarkably unique or innovative following the S4's release, its gap with Samsung, according to TrendForce, is only likely to become more and more apparent.”

It isn’t helping that in China the iPhone still isn’t available on the 3G TD-SCDMA network of China Mobile, the world’s largest carrier with over 700 million subscribers. It used to be thought that Apple was holding out on that deal, given it would require the firm to manufacture a new device compatible with the TD-SCDMA standard. Now it seems the operator holds all the cards.

Of course, all is not lost for Apple. It still has a healthy share of the global smartphone market and is rumoured to be planning a low-cost model which could go down well in Asia. The devil, however, will be in the detail. Many commentators were surprised at the bulky price tag Apple stuck on the iPad Mini and if it decides to keep its margins pretty high on the new “budget” handset then the whole plan could backfire massively. In fact, new research from Chinese web portal Sina Tech found that most consumers are only willing to pay 1000-2000 RMB (£163-£327) for a domestically produced phone. The original survey is here.

Although Apple is one of the best-known and most popular international brands around, it would do well to take note. Things could get pretty bumpy in Asia for Tim Cook and co. otherwise.


John Anderson has been writing about technology and all things Asia for over a decade. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region.