How Can Apple Recover from Disappointing Sales in China?

by Jim Lundy

Apple has had one of the largest revenue growth runs of any firm in the last 20 years, primarily due to one thing: the iPhone. However, Apple CEO Tim Cook recently warned investors that it will miss its revenue projections. The main reason? Slower sales in China, where smartphone knockoffs exist, especially from Huawei, the darling firm of the Chinese government.

The question remains: how can Apple recover from disappointing sales in China? This blog highlights four key actions Apple could take to be less dependent on China as part of its overall business strategy.

1. Lower the Price of iPhones

Smartphones are not what they used to be. Commodity is close to what they are, partially due to the rise of Android-based designs. Premium prices seem to be the battle cry of the two largest providers: Apple and Samsung. Aragon Fellow Ken Dulaney has gone on record for the last year saying that high-end smartphones are overpriced. The vendor that has raised prices the most is Apple.

Aragon feels that Apple needs to segment its iPhone line significantly to maximize worldwide revenues. The Apple strategy of lowering the price of older models is okay, but it could do more to sizzle up the story for the lower-end phones.

2. Repair Relations with Suppliers

While Apple was never really able to succeed in getting Samsung to pay much in damages for copying the iPhone design, it hasn’t gotten over it, either. Apple has been in litigation with modem supplier Qualcomm—and Apple won its lawsuit in Germany against Qualcomm. That said, it is never good to fight with suppliers.

3. Focus Less on China and Expand in India

Because of all of the smartphones in China, including Huawei, India could be a good hedge for Apple if it can ramp up production there. In fact, Apple partner Wistron is planning to do just that. How much volume Wistron can produce and how much demand there will be in India is yet to be seen in a country dominated by Android.

4. Innovate More with New Products

The last thing that Apple needs to do is ramp up innovation. While the folks at Cupertino will bristle at this suggestion, the truth is that Apple is spending more than $11 billion a year on R&D—more of the innovation needs to see its way into the marketplace in the form of new products that people want to buy. That said, Microsoft is more than two times smaller and is outspending Apple on R&D (see Figure 1).

Bottom Line

Will Apple take action to remedy this? That remains to be seen. The bottom line is that to recover from slower sales in China, Apple needs to add more lower priced iPhones, repair relations with suppliers, expand in India, and innovate.