China Makes a New Problem for Apple

By: Alyssa Miller | Last updated: Feb 07, 2024

In the United States and most parts of the world, Apple products reign supreme. However, Apple is facing a major challenge in one of the company’s biggest markets.

Huawei is one of the largest competitors to Apple in China. Now, the company is about to get a huge tech boost to help their smartphones compete with iPhones. How exactly? Let’s get into it.

China Is Solving Its Semiconductors Problem

High-end semiconductors have been a challenge for Chinese smartphone makers to get their hands on. High-end semiconductors are crucial for smartphones because they enable the powerful features and capabilities that users demand in today’s mobile devices.


Source: Jacobs School of Engineering, UC San Diego

The reason it has been hard for Chinese smartphone companies to get their hands on these semiconductors is because of the tough export restrictions in the U.S.


Apple’s Tech Edge Might Not Last 

Because these semiconductors are easily available to the U.S. and Western markets, Apple was able to secure the region’s best-selling smartphone brand for the first time last year. But Apple’s tech edge might not last.

Apple's iPhone 15 Pro and iPhone 15 Pro Max on a white background

Source: Trusted Reviews

Facing a challenge that affects China’s biggest smartphone makers, chip-makers in the region, including state-backed SMIC, are creating chip production lines in Shanghai to supply state-of-the-art processors to domestic smartphone makers (via Financial Times).

China Is Making Semiconductors Now

This development will provide domestic brands with locally-made chips, solving the problem of importing chips from the U.S. This solution is great for Chinese companies, but threatens the profitability of Apple’s iPhone.

Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, China, on Wednesday, May 26, 2010. Hon Hai is the parts supplier for many hi-tech companies around the world including Apple Inc., Hewlett-Packard Co. and Dell Inc. There have been 12 suicides at the company's 300 thousand employee strong factory complex in Shenzhen so far this year. Foxconn has since moved some of its operations further inland to be closer to labor pool as well as cut costs.

Source: In Pictures Ltd./Corbis via Getty Images

Over the last few months, Apple has started to feel the striking revenue potential of its products in China.

Apple’s End of the Year Sales Were Down in China

Apple has reported a two percent increase in global revenue in the final quarter of 2023, with sales rising to $119.6 billion. However, this reporting comes as Apple’s sales start to slow down in China.

A Chinese employee wears a protective mask as he sits in the showroom of an Apple Store after it closed for the day on February 1, 2020 in a shopping district in Beijing, China. Apple announced it was closing all of its stores in China until February 9th due to the outbreak of the coronavirus in Wuhan, The number of cases of a deadly new coronavirus rose to almost 12000 in mainland China Saturday, days after the World Health Organization (WHO) declared the outbreak a global public health emergency. China continued to lock down the city of Wuhan in an effort to contain the spread of the pneumonia-like disease which medicals experts have confirmed can be passed from human to human. In an unprecedented move, Chinese authorities have put travel restrictions on the city which is the epicentre of the virus and neighbouring municipalities affecting tens of millions of people. The number of those who have died from the virus in China climbed to over 250 on Saturday, mostly in Hubei province, and cases have been reported in other countries including the United States, Canada, Australia, Japan, South Korea, India, the United Kingdom, Germany, France and several others. The World Health Organization has warned all governments to be on alert and screening has been stepped up at airports around the world.

Source: Kevin Frayer/Getty Images

Apple reported a 13 percent decline in revenue in the Greater China region, according to Business Insider.

Why Does China Matter to Apple

This slowdown can occur immediately after the release of the iPhone 15, the latest generation of smartphone from the company. While sales were decent in the U.S., the slow sales in China was a sign that one of the biggest consumer markets was getting tougher.

Crowds of people walking through a shopping district in Wangfujing Dajie, Beijing

Source: David Stanley/Flickr

With a population of 1.4 billion, China boasts one of the world’s largest consumer market. And with a growing middle class, the increase in disposable income and demand for diverse products and services should be a gold mine for Apple. So, why is it not?


China’s Consumer Appetite Has Changed

Since the COVID-10 pandemic, the consumer appetite in China has decreased. According to BI, China’s consumer price index has fallen for the third month in a row at the end of 2023.

A crowd at night walking through Shanghai, China

Source: Public Domain/Rawpixel

As China’s consumers are looking to make their money count, Apple’s sales declined. But that wasn’t the only reason why Apple’s sales were low.


Chinese Smartphone Makers Are Challenging Apple’s iPhone

There has been a resurgent interest in gadgets made in the country. For example, Huawei’s August release of the Mate 60 Pro, which is a Chinese smartphone with a tiny 7-nanometer chip made in China, sold extremely well.

Huawei Mate 60 Pro sitting on a piece of wood next to gravel

Source: Trusted Reviews

The high speed impressed consumers and helped Huawei see a record increase in sales by 36 percent in the final quarter of the year.


How Can Apple Stay On Top? 

While Apple was still the top-selling smartphone in China last year, the tides are shifting. Can Apple stay afloat if China’s chip plan proves to be a successful and vital option for Chinese smartphone makers?

Hauwei logo in a large warehouse buidling

Source: Matti Blume

Right now, it looks like Apple might be in trouble if it can’t find a way to appeal to the Chinese market.


SMIC Is Making Chips That Rival Apple’s

The FT reported (via BI) that SMIC might be looking to produce 5-nanometer chips, rivaling the already fairly advanced 7-nanometer chips in Huawei Mate 60 Pro. For comparison, Apple iPhone 15 has a 4-nanometer chip and a 5-core GPU.

Tech chips in a green motherboard

Source: PxHere

If SMIC can produce a 5-nanometer chip in 2024, then Apple might lose its title of best-selling smartphone in China very quickly.


Apple Is Aware of the Challenge

Apple is aware of this threat. Actually, the company has been aware of this growing threat to their revenue for a while. Apple CEO Tim Cook made two visits to China, including a surprise visit in October during sales struggles.

A man in an orange long-sleeve shirt scrolling through his phone in an Apple store

Souce: Sami Abdullah/Pexels

In the first 17 days of the iPhone 15’s release, sales were down 4.5 percent compared to the sales of the iPhone 14 the year before (via Counterpoint Research).


Other Issues for Apple in China

Apple is also suffering from rumors. Last year, reports emerged that Beijing had banned the use of iPhones by government officials. While the Chinese government denied these reports, Apple suffered a $200 billion loss in market capitalization.

A two-story Apple store with large glass windows and a glowing white Apple logo

Source: WeStarMoney/Pexels

The rising tensions in China have Apple trying to find what they need to do next to secure their place as one of the largest consumer market in the world.