Here's Why Apple's iPhone Price Cuts in China Might Not Be Working

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My colleague Evan Niu recently went over a report from Longbow Research in which the analysts claim that despite substantial iPhone price cuts in China, iPhone demand just isn't picking up.

Indeed, the report claimed that iPhone search trends in China weakened and that "February supplier sales were abysmal, decelerating on a year over year basis vs. January."

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This report seems to point to fundamental issues with Apple's (NASDAQ: AAPL) product lineup and competitiveness in the region.

Why aren't price cuts working?

If there were significant interest in Apple's latest crop of iPhones but some consumers were simply holding off because the prices were too high, then price cuts should have helped drive incremental demand for the products. And these price cuts were significant. As Reuters pointed out in January, iPhone resellers in China cut iPhone XR prices by as much as $118.

But if one argues that Apple still isn't cutting prices enough to have a significant impact on demand, then it must mean Apple's current iPhone lineup just isn't competitive enough to command what the company is asking for them.

This, unfortunately for Apple, seems like a plausible explanation.

For example, Apple rival Huawei, China's top seller of smartphones, saw its smartphone shipments grow in the region even when Apple and other smartphone makers were reporting declines there. This isn't totally an apples-to-apples comparison, as Huawei plays more broadly across the various smartphone price points than Apple does, but the China-based smartphone maker also seems to be enjoying significant success with its own premium smartphones that, in some ways, are differentiated relative to Apple's offerings.

In fact, even Samsung (NASDAQOTH: SSNLF), which saw its market share in the Greater China region decimated over the years as it struggled to compete with local Chinese smartphone vendors, is seeing some renewed success in the region. According to TF International Securities analyst Ming-Chi Kuo, the Galaxy S10-series is enjoying "much better-than-expected demand in [the] China market."

The Galaxy S10-series devices, too, are differentiated from Apple's current offerings, according to the analyst, with features like "ultrasonic fingerprint on display, rear triple-camera, and bilateral wireless charging."

In simple terms, Apple just doesn't have the right product line to achieve its unit shipment or revenue goals.

A better product offering could do the trick

I think Apple's iPhone business performance in Greater China will improve when the company's product offerings become more competitive on features and capabilities. The Chinese smartphone market is extremely competitive and filled with hungry players willing to launch a large number of products and iterate on them quickly in a bid to capture market share. Apple's product development and launch strategy needs to adapt for it to, at a minimum, stabilize its current market share in the region.

Apple's current iPhone lineup is simply a dud in the Greater China region. In about six months, the company should announce a new lineup of iPhones, and I'll be watching closely to see if these new devices help improve the company's situation in the region or if the market share and revenue declines will persist.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.