The Anxiety Behind Cook's Frequent Visits to China: What's Wrong with Apple?

The Anxiety Behind Cook's Frequent Visits to China: What's Wrong with Apple?Before 2022, although Cook acknowledged China as a key market for Apple, his visits were infrequent. He only occasionally went to China to discuss cooperation matters with supply chain companies

The Anxiety Behind Cook's Frequent Visits to China: What's Wrong with Apple?

Before 2022, although Cook acknowledged China as a key market for Apple, his visits were infrequent. He only occasionally went to China to discuss cooperation matters with supply chain companies. However, starting from 2022, Cook's visits to China have become much more frequent. This year alone, he has visited twice, in March and October. Unlike his previous visits, this year, Cook hasn't solely met with supply chain partners. He had meetings with Wang Wentao, the Minister of Commerce, discussing Apple's development in China and the Sino-US economic and trade relations. Cook also visited Jin Zhuanglong, the Minister of Industry and Information Technology, and Yang Jie, the Chairman of China Mobile, expressing his commitment to supporting the high-quality development of China's supply chain industry and deepening cooperation on 5G applications to enhance user experience.

Cook's active engagement with China has triggered a wave of discussions online, with many speculating on the purpose behind his frequent visits. Some believe that after Apple removed Chinese companies from its supply chain, Cook is trying to appease consumers who are hesitant to support the brand. Others believe that Cook's visits are aimed at finding solutions for bringing Apple Intelligence, the AI feature of the iPhone 16 series, to the Chinese market, which has encountered obstacles.

Regardless of the actual reason behind Cook's visits, his frequent trips to China likely stem from the declining sales of iPhone, Mac, iPad, and other products.

iPhone Sales Drop Out of Top 5, Cook Is Worried

Data from Counterpoint, a research firm, shows that in the third quarter of 2023, domestic smartphone sales experienced a 2.3% year-on-year increase, marking the fourth consecutive quarter of growth. This rise offers hope for a turnaround from the recent downturn and potential overall growth for the year. However, Apple's iPhone sales did not follow the market trend and instead declined by 2.6% year-on-year, falling out of the top five in the Chinese market. (Domestic smartphone sales are shown in the graphic from Counterpoint)

Globally, iPhone sales increased by 1% year-on-year, but this growth pales in comparison to the sales increases achieved by Xiaomi, Vivo, and other brands. (Global smartphone sales are shown in the graphic from Counterpoint)

Shortly after the launch of the iPhone 16 series, Ming-Chi Kuo, an analyst at TF International Securities, predicted that iPhone 16 series orders would fall short of expectations, citing an initial weekend pre-order volume that was 12.7% lower than the iPhone 15 series. More recently, Kuo reported that Apple will be cutting iPhone 16 series orders by 10 million units from the fourth quarter of this year to the first half of next year.

During the Double 11 shopping festival, Apple offered unprecedented discounts, including a 500 yuan coupon for the entire iPhone 16 series on its Tmall flagship store. Customers could also receive up to 1100 yuan in subsidies by participating in the trade-in program. Offering significant discounts on new models shortly after their release is unusual for Apple. Apple staff have confirmed that such large-scale price reductions have rarely occurred in the past. This indicates that the iPhone 16 series is facing sales pressure. (Source: Apple)

Strictly speaking, iPhone 16 sales have exceeded expectations. Data from Counterpoint shows that in the Chinese market, the iPhone 16 series saw a 20% increase in sales during the first three weeks compared to the iPhone 15. However, overall iPhone sales declined by 2%. This means that while the iPhone 16 series had a higher year-on-year sales growth, it was not enough to boost overall Apple smartphone sales. This is why analysts believe that the iPhone 16 series has not met expectations. The iPhone 16 series, with its AI features, should have attracted users from the iPhone 15/14 series and achieved a significant sales increase.

The key reason for the iPhone 16 series' underperformance lies in the limited hardware upgrades and the delayed launch of the highly anticipated Apple Intelligence feature. The new camera button has also received criticism from users, many of whom find it inferior to the experience offered by Sony phones. These factors have led to a negative public perception of the iPhone 16 series, which could negatively impact sales. Once initial pre-order shipments are delivered, the iPhone 16 series may struggle to maintain momentum, leading Apple to reduce its orders.

Smartphones are the core of Apple's business. Declining sales inevitably impact the company's revenue and profit. What makes things worse for Apple is not just the slump in iPhone sales, but the decline in sales across its product line.

Not Just iPhones, Sales of Apple Products Are All Down

Mac, another significant part of Apple's business, is also experiencing a sales decline. Data from Canalys shows that in the third quarter, global PC sales grew by 1.3% year-on-year. Lenovo, HP, Asus, and other brands saw their sales rise, while Apple's computer sales plunged by 17.5%. In the Chinese market, Apple computers did not make it into the top five, so specific data is not available. (Source: Canalys)

The iPad, leveraging the strength of the Apple ecosystem, has long dominated the tablet market. IDC data reveals that global tablet sales increased by 22.1% year-on-year in the second quarter. Apple tablets also achieved a notable 18.2% growth, falling short of the industry average but still maintaining Apple's image. (Global market data from IDC)

However, the iPad's performance in the domestic market has been lackluster. According to Canalys, iPad sales in China fell by 14% year-on-year in the second quarter, making it the only leading brand with a decline. It was overtaken by Huawei. Given the iPad's high price, it's likely that domestic tablet manufacturers will grab a larger share of the market. (Domestic market data from IDC)

Moreover, SDCC, a market research firm, reported that the expected shipment volume of the iPad Pro in 2024 has been revised downward from 10 million units to 6.7 million units. The 11-inch iPad Pro is expected to see a 40% decline in shipments in the third quarter and a 30% decrease in the fourth quarter. For the 13-inch iPad Pro, shipments are predicted to drop by 50% in the third quarter and over 90% in the fourth quarter. The iPad is facing greater challenges in the high-end market. The 90% decline in expected shipments of the 13-inch iPad Pro in the fourth quarter doesn't even represent Apple's worst case scenario. The product that has faced the most dismal fate is undoubtedly the VisionPro, which Cook had high hopes for.

Rumors surfaced earlier this year that Apple had significantly slashed orders for the VisionPro due to its poor sales. Recently, an employee at Luxshare Precision, the manufacturer of the VisionPro, revealed that daily production of the device has been reduced from a peak of 2000 units to 1000 units. The current version is expected to be discontinued in November.

Even AirPods, the leading TWS earphones from Apple, experienced a 5.4% year-on-year decline in global sales in the second quarter, despite an overall 12.6% year-on-year growth in the industry. Fortunately, AirPods remain a dominant player in the TWS earphome market, holding more than twice the market share of the second-place brand despite the decline in sales. (Global market data from Canalys)

The picture is different in the Chinese market. In the second quarter, Apple TWS earphones sales increased by 4% year-on-year, a rare instance of sales growth for Apple products. However, compared to the year-on-year growth of over 40% achieved by Xiaomi, Huawei, and Baseus, AirPods' growth is still quite small. (Domestic market data from Canalys)

Overall, the global consumer electronics market has recovered since the end of 2023, with sales of products like smartphones, PCs, tablets, and TWS earphones showing an increase. However, among Apple's mainstream devices, only tablets have followed the industry trend with a significant increase in sales. iPhone sales growth has been modest, while other products have seen a decline. Looking at the Chinese market, Apple's performance is even worse, with almost all products experiencing sales declines.

Cook's visits to China likely stem from the pressure he feels due to the sales decline across various products. He may be hoping to reverse the trend in the world's largest consumer electronics market and achieve sales and revenue growth through the Chinese market.

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