By Clay Chandler
September 23, 2017

Good morning from San Francisco. I’ve been here all week, partly to join Thursday night’s dinner spotlighting this year’s Fortune Global Forum in Guangzhou, and partly to recruit speakers for our inaugural Brainstorm Design conference in Singapore. As I scurry back and forth to meetings here and in Palo Alto, I’ve been struck by the ubiquity of Apple products.

In the lobby of my hotel, on the streets, in coffee shops and restaurants, in offices—everywhere I go it seems like everyone in the Bay Area is jacked into some kind of Apple device all the time. On the Embarcadero yesterday afternoon, I was nearly run over by a skateboarder listening to his iPhone on Apple earbuds threaded through quarter-sized holes in his earlobes that were secured by earrings made of Apple’s signature white plastic and brushed aluminum.

Apple’s omnipresence feels odd to me because in China, where I spend most of my time, Apple is just one species in a far more diverse gadget ecosystem that includes brands like Samsung, Huawei, Oppo, Vivo and Xiaomi. I live in a small beachside village on the far southeastern tip of Hong Kong island where every morning tour buses disgorge hundreds of selfie-mad mainland tourists. My totally unscientific observations of these throngs suggest that fewer than one in 20 is using an iPhone. That’s about the same ratio I’ve seen on recent trips to Shanghai, Shenzhen and Guangzhou.

It was not always thus. As recently as 2015, Apple was—by far—the hottest brand in China. But this week, when Apple rolled out its new iPhone 8 and iPhone 8 Plus in China, Middle Kingdom consumers stayed home in droves. The Chinese consider eight a lucky number. But a host of reports confirm that, for Apple, it is proving anything but auspicious. At Apple’s mainland stores, queues have been so short that staff have had to remove crowd control barriers. In Hong Kong, the story is much the same. Demand is so weak that even scalpers are complaining.

The lack of enthusiasm in stores may reflect the fact that more Chinese consumers are purchasing phones online. Or it may be that many are just waiting for the release of the iPhone X, which won’t go on sale in China until November 3. But there’s no denying that Chinese-made phones are getting better and better, and offer functions comparable to Apple at a fraction of the price.

China is still Apple’s most important market. As I noted in last week’s CEO Daily, Apple’s market share in China has slumped to 7%, down from 16.5% in 2014. The current issue of The Week in China offers a detailed examination of why Apple’s China sales have faltered. The conclusion: specs of Chinese handsets now rival that of Apple’s phones, and Chinese consumers—who prefer the online services of China’s two tech giants, Tencent and Alibaba—are far less wedded to Apple’s operating system than their American counterparts.

Apple’s travails are just one example of how it’s getting tougher and tougher for foreign firms to compete in China’s vast and still rapidly growing market. In many cases, foreign firms are stymied in China because of unfair government rules that tilt the playing field in favor of local challengers. But Apple’s China slump highlights the fact that Chinese firms can be formidable competitors. For now, that’s mostly a problem inside China. But inevitably Chinese firms who win their home market will challenge Western, Japanese and Korean incumbents around the world.

Enjoy the weekend!

Clay Chandler


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