Apple's Next iPhone Offers Chance to Appeal to China's Affluent

By Alyssa Abkowitz Features Dow Jones Newswires

Apple Inc. has been facing plenty of headwinds in China lately, including plunging sales, increasing competition from rival smartphone makers and pressure from the government to comply with tough new security rules.

Continue Reading Below

The new iPhone expected this fall offers a glimmer of hope, some analysts say, thanks to affluent Chinese consumers who are willing to pay premium prices for the latest technology.

While China's overall smartphone market is flat, the higher-priced market, or phones that cost 4,000 yuan ($595) or more, is still increasing, analysts say.

"Consumers are still willing to upgrade and some of them are waiting to buy the next generation iPhone," said Jin Di, a mobile-market analyst at research firm IDC.

Factoring in the new iPhone, research firm Canalys forecasts shipments of 27 million iPhones, iPads and the iPod touch in mainland China for the last four months of 2017, compared with 22 million during the same period last year.

Apple could use some good news from China. On Tuesday, it reported that sales sank 9.5% to $8 billion in China, Hong Kong and Taiwan, for the third quarter ended July 1. That was the sixth-straight quarterly sales decline in Greater China.

Continue Reading Below

Apple Chief Executive Tim Cook sought to put a positive spin on the news, saying sales in Taiwan rose 20%. The rate of decline also eased from the previous quarter, when sales had fallen 14%.

Along with shrinking sales, Apple has also been grappling with new cybersecurity rules imposed by the Chinese government.

Last month, Apple announced it would open a data center in China that will be operated by a government-owned firm. Over the weekend, Apple removed virtual private network, or VPN, apps that allow Chinese users to skirt internet censors from its App Store in China to comply with new rules that require providers of such apps to obtain licenses from regulators.

"We would obviously rather not remove the apps, but like we do in other countries, we follow the law wherever we do business," Mr. Cook said on the call with analysts, adding that Apple believes "in engaging with governments even when we disagree."

Industry consultants say Apple is taking care not to offend the Chinese government, especially as it prepares to launch the critical iPhone 10th anniversary model this fall.

"What Tim Cook wants to do is make [Apple's] relationship with the government closer," said Mo Jia, an analyst at Canalys in Shanghai. "By cooperating with the Chinese government, the company is trying to improve its overall presence in China."

The government cooperation may not be enough, as domestic smartphone makers including Huawei Technologies Co. and BBK Electronics Corp. roll out technologically advanced phones at lower prices.

Some analysts also believe demand for the new iPhone will be crimped by China's burgeoning love affair with the WeChat app by Tencent Holdings Ltd., which offers social messaging, mobile payments and a suite of "mini-programs" akin to Apple's App Store.

WeChat is the No. 1 app in China, based on time spent using it, and it works well on any smartphone.

Mr. Cook played down concerns over WeChat Tuesday, calling Tencent "one of our biggest and best developers." He added, "We're looking forward to working with them even more to build even greater experiences for our mutual users in China."

Tripp Mickle contributed to this article.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com

(END) Dow Jones Newswires

August 02, 2017 06:29 ET (10:29 GMT)