Apple needs AI to find footing in China – CanalysApple needs AI to find footing in China – Canalys

Apple ranks at the bottom of the list by market share of top smartphone vendors to Mainland China, according to research firm Canalys. But investing in AI could boost Apple's ability to gain market share, explained analysts.

Apple struggles to gain share in China

Huawei beat out Apple with 15% market share in Q2 2024, up 3% year-over-year, with 10.6 million units shipped. Apple shipped 9.7 million units, which was down 6.7% year-over-year. Apple garnered 14% market share in Q2 of this year.

(Source: Canalys) Mainland China smartphone vendor market share.

Apple is experiencing challenges in China "due to a lack of a proper answer in AI against its competitors," said Canalys Analyst Le Xuan Chiew, in an email to Light Reading.

"In the longer term, Apple is expected to leverage its strengths in chip design, walled ecosystem, and extensive cross-device integration to establish differentiated competitiveness in the new era of AI capable devices to gain strength in the competition," he added.

For a longer-term recovery in the China smartphone market, Chiew explained that Apple should focus on AI features that are of interest to the local market in China. Apple should also focus on adding "new and innovative features to differentiate itself from its competitors."

Q2 is often a low season for Apple, with this quarter being no exception, explained Canalys Research Analyst Lucas Zhong in an email to Light Reading. However, Apple maintained solid inventory levels and strengthened its relationships with channel partners ahead of planned product launches in the second half of 2024.

In the meantime, domestic vendors have been busy launching new products and expanding their offline channel reach, which has increased their smartphone shipments.

"Huawei's introduction of the Pura 70 series has intensified competition in the premium segment, with Huawei rapidly closing the gap and becoming the biggest competitor to Apple in China's premium smartphone market," said Zhong.

Local vendors have strong cooperation with local supply chain partners, which allows them to offer top-tier hardware at competitive prices, added Zhong. They also have invested in software features and GenAI technologies that target local consumers' interests, whereas Apple has been slower to introduce GenAI in China.

A broader look at China's smartphone market

Overall, Mainland China's smartphone market grew 10% year-over-year in Q2 2024 with over 70 million units shipped.

(Source: Canalys) Mainland China smartphone vendor market share.

Vivo took the top spot in the market with 13.1 million units shipped and garnered 19% market share, which was a 15% increase over the previous year. Huawei ranked fourth, coming in after OPPO (11.3 million units) and HONOR (10.7 million units). Competition between local brands is "fierce," said Zhong, as their market shares are very close.

Apple ranked sixth behind Xiamo, which had a 17% year-over-year increase with 10 million units shipped.

Canalys Research Manager Amber Liu said the Chinese marketing is now catching up with "global recovery speeds." Liu explained the shift is mostly being driven on the supply side with vendors pushing nationwide sales events such as "618," which is a major mid-year online shopping spree in China, similar to Black Friday or Cyber Monday in the US.

Utilizing e-commerce platforms, smartphone vendors started the promotional cycle – offering significant discounts and other promotions – earlier this year, she said.

Domestic brands have record-breaking quarter

This is also the first quarter in history where domestic vendors have held the top five positions in smartphone market share in the region, said Zhong. Chinese vendors' partnerships with local supply chains and focus on high-end products are paying off, he added.

"Local brands such as Huawei, HONOR, OPPO, and vivo are leading the way by incorporating technologies such as GenAI into products and services," said Zhong in a statement. "Additionally, the localization of Apple's Intelligence services in mainland China will be crucial in the next 12 months." 

For example, Honors' latest Magic V3 smartphone utilizes GenAI, and "has significantly enhanced the user experience of foldable devices," he added.

While growth in Q2 represents a gradual market normalization, Canalys forecasts a single-digit recovery for the full year.

Among trends to watch in the second half of the year are Huawei's upcoming HarmonyOS launch, which the vendor will try to position as a third major mobile OS alongside Android and iOS, said Canalys Senior Analyst Toby Zhu.

Domestic vendors are also developing AI applications as a competitive advantage to disrupt the high-end smartphone segment. Canalys also expects domestic competition to extend overseas "with Chinese brands expected to achieve new milestones in international markets throughout the rest of 2024."