Is Apple making China a scapegoat?

By Virginia Harrison BBC News

People stand in front of an Apple store in China Image copyright Getty Images

A shock revenue warning from Apple has stoked fresh fears about trade tensions and spending in the world's second largest economy.

But analysts say the cut to its sales forecast reflects longstanding problems at the tech giant.

iPhone sales have been sliding and Apple faces stiff competition in China.

Experts argue the warning highlights the company's need to create new centres of growth.

In a letter to investors on Wednesday, Apple's chief executive Tim Cook said China was central to Apple's sales problems.

The Greater China region, which includes Hong Kong and Taiwan, accounts for almost 20% of the firm's revenue.

Mr Cook said Apple "did not foresee the magnitude of the economic deceleration" in Greater China, adding that US-China trade tensions had hurt consumer confidence.

Cheaper Chinese alternatives

But Apple's troubles in China aren't new.

It has long faced tough competition in the market from cheaper local rivals like Oppo, Huawei and Xiaomi.

The firm is highly dependent on customers buying new phones. That relies on technological advances - and it's here that Apple has struggled to entice consumers.

"Post iPhone 8, the technology advances began to plateau, thus consumers' incentive to purchase a new iPhone has declined," Taipei-based technology analyst Sam Reynolds said.

He said Apple's surprise revenue warning is "simply a sign of the times for Apple".

"I wouldn't read this as a proxy of the US or Chinese economy, nor the impact of the trade war," Mr Reynolds said.

Recent production cuts by major suppliers have led to worries that the firm's newest phones were not gaining traction among buyers, in part due to high prices.

Mr Reynolds said Android phones like the Google Pixel, Oppo's Flagship X, the OnePlus 6, or the Huawei P20 Pro "are simply more interesting products for the price range".

Will Wong, analyst at technology consultancy IDC, agrees that competition from Chinese rivals has presented challenges to Apple.

Mr Wong said the recent detention of a senior Huawei executive had also "triggered the surge of patriotism which would increase the business challenge to Apple".

Consumers tighten spending

Those difficulties are compounded by a slowing Chinese economy.

In recent years, Apple has responded to a decline in smartphone sales by raising prices - a move that has helped the company enjoy record revenues, even while the industry generally contracts.

But that has become more difficult as consumers curb spending, making it harder for the tech giant to sell its premium products.

"Consumers will be getting more price sensitive during the unfavourable economic development, and the competitive pricing offered by the Chinese vendors would be more attractive to the consumers," IDC's Mr Wong said.