China Makes a New Problem for Apple

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.

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.

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.

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.

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.

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.

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.

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.

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?

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.

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.

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.