LDN - Business

Paying the price: China shoppers, stung by slowdown, take bite out of Apple

[January 03, 2019] By Cate Cadell and Josh Horwitz

BEIJING/SHANGHAI (Reuters) - Shanghai student Xu Yechuyi wanted to buy a new iPhone last year but couldn't afford one at Apple Inc's flagship store, so she opted for a used, three-year-old iPhone 6S at less than a third of the sticker price.

The purchase made Xu, 22, one of many consumers priced out of stores and resorting to China's rapidly growing second-hand handset market, bartering via text-messaging apps and spending money on Apple products that never reaches Apple.

"I think there is real demand for this sort of second-hand market from less affluent consumers like me," said Xu.

The second-hand trend adds to challenges Apple faces in the world's biggest smartphone market, where it has long been losing ground to domestic makers of high-end yet lower-priced handsets such as market leader Huawei Technologies Co Ltd [HWT.UL].

The first iPhones in China in 2009 brought Apple record profit. But the launch last year of its most expensive handset ever - priced 9,599 yuan ($1,397) - coincided with economic downturn and a slowing smartphone market, while deteriorating Sino-U.S. trade relations stoked support for local rivals.

Poor iPhone sales in China prompted Apple on Wednesday to lower its quarterly revenue forecast for the first time in over a decade, hammering its shares and those of its suppliers. Chief Executive Tim Cook blamed the trade war and the economy. (https://tmsnrt.rs/2SATVKo)

"We did not foresee the magnitude of the economic deceleration, particularly in Greater China," said Cook.

Several leading Chinese technology companies also lowered forecasts in the past year, including e-commerce firm Alibaba Group Holding Ltd and search engine provider Baidu Inc, with both citing the impact of the trade war.

Meanwhile consumer confidence has tumbled since the middle of last year, with its impact rippling through the economy, from overall retail numbers to box office receipts and car sales.

As confidence falls and the economy continues to slow, analysts said the market for used smartphones can only expand. China's iiMedia Research forecast 144 million users of second-hand smartphones in 2019, up a third versus last year.

"The macro environment is just not in Apple's favor," said Singapore-based IDC senior research manager Kiranjeet Kaur. "People's spending power is coming down."

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A man walks out of an Apple store in Beijing, China December 14, 2018. REUTERS/Jason Lee

In west Beijing's tech district, one worker surnamed Zhou at a phone refurbishing firm said she had seen a rise in users looking to upgrade old iPhones instead of purchasing new ones.

"Quite a few people choose to continue using their older iPhones by changing the battery and updating to iOS 12," agreed one user on Weibo, referring to Apple's latest operating system.

"BUY CHINESE BRANDS"

On Thursday, popular threads on microblog site Weibo largely blamed the price for a drop in sales of what was once a must-have status symbol, with some comments taking on a patriotic bent.

"Only fools buy expensive iPhones. Sane people buy top quality, cheap Huawei," wrote one user in a comment 'liked' several hundred times. "Support Chinese brands!"

Support for local smartphone brands gained momentum in the past year as the U.S. imposed import tariffs on Chinese goods. Netizens responded by calling for a boycott of Apple - a company widely regarded as being representative of the United States.

Apple started 2018 with a market share of 15 percent but that had fallen to roughly 9 percent by July-September, showed data from Counterpoint Research. Huawei, whose high-end phone retails at 70 percent of the price of fifth-ranked Apple, saw its share rise to 23 percent from 20 percent.

The Chinese handset maker gained further support last month after the arrest of its chief financial officer in Canada at the request of the United States.

At an Apple shop in Beijing's Wangfujing shopping district on Thursday, fashion worker Zhang Lijun was considering buying an iPhone X or the competing Huawei P20, which runs on Alphabet Inc's Android operating system.

"I think the price is too high," she said, referring to the iPhone. "Huawei has been trending in the past two years, maybe because there's been more awareness about supporting local brands."

(GRAPHIC: Apple share price, EPS, units sold and revenue per region - http://tmsnrt.rs/1WQvKWe)

(Reporting by Cate Cadell and Josh Horwitz; Additional reporting by Ryan Woo and Stella Qiu in BEIJING, Sijia Jiang in HONG KONG and the Beijing and Shanghai Newsrooms; Editing by Christopher Cushing)

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