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Since releasing its Mate 60 Pro series last August, Chinese tech giant Huawei has made a comeback in China’s smartphone market, knocking Apple (AAPL) from its pedestal.
Huawei and other homegrown smartphone makers have experienced double-digit growth this year, boosting smartphone shipments in China by 8.9% year-over-year in the second quarter, according to the International Data Corporation.
China’s Vivo, Huawei, Oppo, Honor — a former subsidiary of Huawei — and Xiaomi made up the top sharers of China’s smartphone market, respectively. Apple, meanwhile, fell to sixth place. And despite cutting prices on some iPhone models to compete, the data showed Apple’s year-over-year sales declined 3.1%.
Apple’s iPhone shipments in China experienced “marginal decline” in the second quarter of this year, Counterpoint Research said, noting that during the same period last year, Apple had the third-highest number of shipments — only behind Oppo and Vivo — while Huawei was in sixth place.
Apple’s fall in China can be tied to many factors, experts said, including the country’s faltering economy and changes in how its citizens view their country versus the rest of the world amid the pandemic and the growing number of sanctions imposed by the West.
“There’s a higher degree of nationalist sentiment right now within China, of buying local and buying the home team versus buying an American product,” Arthur Dong, professor at Georgetown University’s McDonough School of Business, told Quartz.
Huawei is the Chinese economy’s “national champion”
Since Huawei was placed on the U.S. trade blacklist in 2019 under former President Donald Trump, the company has faced increasingly tough trade restrictions under President Joe Biden — especially on the latest generation of semiconductors such as those from Nvidia (NVDA), Dong said.
Escalating trade rules on China and Huawei are putting the tech company, which has ties to the Chinese government and which Dong called “a national champion for the Chinese economy,” “in a tough spot right now.”
“Huawei is scrambling right now to try to find alternative sources for these all-important chips, as well as some very significant self-development efforts to try to replicate these technologies and build chips on their own,” Dong said. “With regard to that issue, China is having a really difficult time being able to replicate the chips that sort of fuel AI advancements simply because they don’t have access to the tools and the machinery that build these chips, all of which are within the confines of U.S. export controls.”
Dong said he doesn’t see the current situation getting better for Huawei. With another round of restrictions expected over the next few months, the “gaps” that China and Huawei depend on to move around sanctions “are going to be closed,” he said.
Apple is no longer a status symbol
In the early 2010s, Apple was seen as a “legitimate, ultimate symbol of status,” Andy Tsay, professor of business and analytics at Santa Clara University’s Leavey School of Business, told Quartz.
Tsay, who is also a visiting professor in Peking University’s MBA program, said his friends in China would “place their orders” with him for iPhones because Apple’s products were more difficult to find there and there were shortages. Now, there are more Apple Stores in the country.
“There really was no comparison, no competitor,” Tsay, who has visited China roughly every year since 2006, said. “Now, people still think Apple is a fine and legitimate luxury product. But the difference is, they’re not fanboys and fangirls anymore.”
On his most recent visit to China a few months ago, Tsay asked his MBA students, part of China’s professional class, what they thought about their iPhones.
While his students told him that they are satisfied with their iPhones, they also said their next phone “won’t necessarily be an Apple,” and that “there are some Chinese options that are pretty good.”
“I’ll get whichever phone has the best price-to-benefit ratio,” Tsay’s students told him.
China’s undergoing deepening economic woes and a post-pandemic cultural shift
In 2020, Huawei had 18% of the world market for smartphones, Dong said. Two years later, that number fell to 2%, largely because Huawei was restricted from necessary chips and components, he said, and he doesn’t see the company rebounding soon.
“They’re still facing challenges in the Chinese market because the overall consumer economy of China has gone into a tailspin,” Dong said. “Apple’s problems are mostly related to the fact that the Chinese consumer has gone into hibernation and they can’t afford this kind of phone because their entire economy is, in a sense, collapsing.”
Huawei’s growing sales are “only because their phones are a lot cheaper than Apple’s phones,” Dong said. If Huawei and other Chinese smartphone makers are offering cheaper alternatives, consumers will want those smartphones, he added.
China is “more isolated” than it was during its superpower status in the 2010s, Tsay said, likely due to anti-Chinese sentiments stemming from the pandemic.
Meanwhile, companies are “trying to extricate themselves from being too reliant on China,” and Western governments continue to ban China’s access to certain technologies, such as equipment to build advanced semiconductors.
“You combine that all together with the rise of domestic products, and if people, locally, can feel a little bit good about themselves by supporting the home team, there’s a little bit of something in the trend,” Tsay said.
Huawei’s chips could be “more bark and less bite”
There are two views of the AI chips in Huawei’s smartphones, Dong said.
“On the one hand, it could send us an alarming signal that China has the ability to create their homegrown chips,” Dong said. “But there are other stories that you will see where these chips have been examined and the engineering analysis on them is that they’re not even close to the capabilities of what Nvidia is producing — that it’s actually several generations and years behind.”
Despite Huawei’s “headline-grabbing” announcements about developing its own chips, Dong said he finds it difficult to imagine how the company has made its advanced chips without access to critical machines and components under trade restrictions.
“This is perhaps more bark and less bite when it comes to this announcement that they have advanced-level chips,” Dong said.
Huawei and Apple’s competition goes beyond AI features
The competition between Apple and Huawei in China is also tied to the difference in what Apple can offer its U.S. consumers versus its Chinese consumers, Tsay said.
Apple’s advantage in the U.S. is its control over its ecosystem, according to Tsay, allowing it to deliver a differentiated user experience. China, however, has a “unique situation” where its “version” of Apple’s iOS is WeChat.
“You almost don’t need the tightly integrated, walled garden of the Apple ecosystem in China to deliver that experience because it already exists inside the WeChat world,” Tsay said. “That gives the local cell phone companies an advantage in the sense that they can use Android or their own version of Android or a brand new operating system — they don’t need to create that self-contained ecosystem that Apple has so painstakingly created over the years because Tencent already did it for them by creating WeChat.”
The one place the two companies differ, Tsay said, is with Apple’s security and privacy features. “Of course, nobody in China has any expectation of security and privacy when they are online,” he said.
