Some analysts doubt the Chinese will pay $1,000 for ‘iPhone 8’ when they spend most of their time in WeChat (AAPL)

July 31, 2017

Some analysts doubt the Chinese will pay $1,000 for ‘iPhone 8’ when they spend most of their time in WeChat (AAPL)

iPhone 6 Plus China

When Apple launched the iPhone 6 and iPhone 6 Plus in China, back in 2014, they proved to be a huge success and an overall massive boost for the Cupertino, California, company.

But the iPhones that followed, the iPhone 6s and 7 (as well as their 6s Plus and 7 Plus bigger brothers), didn't manage to do as well, and Apple has lost significant market share as a result, from a 13% peak in 2015 to less than 10% now.

The 10th anniversary iPhone is supposed to debut later this year, and it will allegedly come with a series of new features that have never been on previous iPhones, such as an organic light-emitting diode (OLED) display as well as a new design that will see that screen stretch out across almost the entire front.

China is Apple's second-largest market after the US, as it generates approximately 25% of the firm's profits, so of course the pressure Apple is facing with the new iPhone's release is immense. Some analysts claim the iPhone 8's success "largely depends on sales in China," according to a report from the Wall Street Journal.

The iPhone — still the company's biggest driving force — is not the growth machine it once was, and there may be a few reasons why that is the case.

One is the global smartphone installed base, which has grown exponentially alongside the quality of the devices. Now that more people have better smartphones, they are less compelled to spend money on a new handset — especially if the upcoming model, the tentatively-called "iPhone 8," might end up costing upwards of $1,000 (£758).

In China, cheaper, locally made phones are chipping away at the iPhone's success, particularly those from Huawei, Oppo, and Vivo; all companies that have recently decided to let go of the competition on the low end and focus on the premium market, the one Apple dominates.

This is why, in a recent note, analysts at Deutsche Bank warned about the iPhone 8's sales being potentially disappointing. The iPhone 6 and 6 Plus represented a "supercycle" for Apple — one where they sold an enormous amount of devices — but the fear is that the iPhone 8 wave could simply be a "cycle."

In China, Apple may be facing even more problems, according to the analysts cited by The Wall Street Journal. WeChat in particular is seen as one of Apple's biggest enemies, as most of what Chinese consumers do — hail cabs, pay for foods at restaurants, stream videos, play games, and of course keep in touch with friends and family — can be done within the WeChat app, which is also available on Android.

"Skeptical investors are asking whether consumers in China will pay $1,000 for a new iPhone, when they spend more than 60% of their phone time inside a system from Tencent [WeChat] or from rivals Baidu Inc. and Alibaba Group Holding Ltd.," the WSJ report says.

Ben Thompson of independent research firm Stratechery also noted that only 50% of iPhone owners remain loyal to Apple in China, whereas that figure is closer to 80% in the rest of the world. With the cross-platform WeChat essentially neutralising software differences, the only effective card Apple has to play is how customizable its software can be for each one of them.

"Being simply another smartphone vendor is a hazardous place to be," says Thompson. Not randomly, a number of people interviewed by the WSJ claim that switching away from the iPhone wasn't hard. "I don’t miss the iPhone at all," said Ms. Wang, 24 years old, while Ren Yanmei, 56, remarked that "If a phone has WeChat, I don’t care about the brand."

As a result, Apple has recently taken a series of measures that are specific to the Chinese market.

Last month, the Cupertino giant appointed an executive, Isabel Ge Mahe, to oversee the business in the country and make sure that the company adds the right features to appeal the local market. It then introduced a native QR reader in iOS 11's camera app — another feature extremely popular among WeChat users in China.

The iPhone 8 will likely ship with iOS 11 pre-installed out of the box, and is something millions of people will get ahold of with their new devices. Earlier last week, Apple also removed from the App Store a series of virtual network providers that allowed users to circumvent Chinese restrictions, in an effort to comply with the authorities.

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