Apple in China: Making Chips At Home
Welcome to this week’s edition of our “Apple in China” series. We keep a finger on the pulse of this important region of the world, which only a few years ago accounted for one-fourth of Apple’s global revenues.
The country is not only important for its consumer market, but also as a key supply chain hub. Nearly half of Apple’s top suppliers are currently located in China (see chart below). But concerns have been raised over Apple’s dependence on the country, given the COVID-19 production disruptions earlier in 2020 and the US-China trade war that shows signs of heating up again.
Bringing the supply chain in-house
To start, Taiwan Semiconductor Manufacturing allegedly halted orders from Huawei for smartphone and communication equipment components. This was in response to the White House’s new policy on selling chips with US technology to the Chinese tech giant. Now, the third biggest smartphone company in China, Oppo, is also looking to adjust its supply chain.
The company plans on developing its own smartphone chips, possibly stepping away from previous suppliers Qualcomm and MediaTek. It is unclear whether the move is a protection against potential trade restrictions or a push to bring technology in-house ahead of the 5G cycle.
Battle of the smartphones in China
Oppo is one of the big Chinese smartphone vendors in Apple’s crosshairs. If the Cupertino company wishes to regain relevance in this market, it will need to go to battle with it and Xiaomi first.
The iPhone currently holds a timid fifth position in the smartphone market in China. In addition to total smartphone shipments having dropped 22% recently, Apple’s share has decreased from 14% in the holiday quarter to 9% in the first few months of 2020.
To make matters worse, Chinese competitors have already kicked off the 5G race. Some compatible models made by Huawei, Xiaomi and Oppo have been around for longer than one year.
In a year marked by a disruptive global pandemic, Apple has quite a bit of catching up to do. To address the more price-sensitive slice of the Chinese market, the company has in its arsenal the entry-level iPhone SE. And to compete at the higher end of the spectrum, the Cupertino company had better wow the market with its late 2020 product refresh.