The tech giant's latest issue in the region concerns the new Apple Watch Series 3. Owners in China have discovered that the device's cellular connectivity had been cut off abruptly, barring them from making voice calls, sending and receiving text messages and accessing other data, according to the Wall Street Journal. The latest version of the Apple Watch is the first to have its own cellular access, instead of it being tied to an iPhone.
Shares of Apple were sliding 2.5% to $155.72 on Thursday morning, primarily on reports that Apple has cut orders of iPhone 8 models by more than 50% due to lackluster demand. The stock has climbed more than 37% so far this year, however, as investors look forward to the possibility of a sales super cycle tied to the 10th anniversary iPhone X.
The Apple Watch's built-in cellular connectivity is by far the biggest breakthrough feature on the Series 3 model, but the feature is harder to roll out on a mass scale in regions like China, which has notoriously tough tech regulators. Consumers were able to register their Apple Watch Series 3 exclusively with state-owned phone carrier China Unicom, the Journal reported. China Unicom started offering cellular service subscriptions when the Apple Watch went on sale Sept. 22, but stopped accepting new cellular subscriptions abruptly after Sept. 28.
China Unicom hasn't indicated when or whether it will resume offering cellular subscriptions for the Apple Watch Series 3. Representatives from Apple didn't immediately respond to a request for comment.
It's likely that China is cracking down on the Apple Watch Series 3 because it's harder to track users of the device, creating some government security concerns. That hasn't stopped some analysts from holding onto the belief that the Apple Watch Series 3 will be a blowout success in the U.S. and China. GBH Insights analyst Daniel Ives called the latest issue a "small speed bump" in the Apple Watch growth story in China over the next 12 to 18 months.
"Overall, regulatory issues in China are par for the course and not unexpected as we believe Apple should be able to smooth over any issues on the cellular Watch over the coming months," Ives wrote via email. "We strongly believe based on our data points that Apple Watch 3 is off to a white hot start in the U.S. and will ultimately see tailwinds in China during 2018 and help make this a 'gate opener' wearables product for [Apple]."
Earlier this week, Ives said his channel checks pointed to the Apple Watch Series 3 gaining "significant momentum" among consumers and could rack up a 35% increase in sales vs. the Series 2.
Apple does have plenty of experience navigating China's stringent regulatory system. Before its issues with the Apple Watch, the company in July was forced to bow to regulators and remove many major VPN apps from the App Store in China. The Ministry of Industry and Information Technology recently issued stricter rules to regulate virtual private networks, which allow users to bypass China's "Great Firewall" that restricts access to many internet websites.
Apple, which has sought to build better relations with China, said it removed many of the apps because they included content that's illegal in China. Several watchdog groups warned that it could set a "dangerous precedent."
In January, Apple was criticized for removing the New York Times' English-language and Chinese-language news apps from its App Store in China. The company said it was complying with requests from Chinese authorities who said the apps were in violation of local regulations, which say apps can't "engage in activities prohibited by laws and regulations such as endangering national security, disrupting social order and violating the legitimate rights and interests of others."
One of the biggest blows came in April 2016, when Chinese regulators began barring Apple from selling ebooks and movies in the region. The decision came as part of a wider crackdown on online services owned by foreign companies.
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