Why is Apple struggling in China?

Customers in Apple's Shanghai store Image copyright Getty Images

Apple has again posted strong quarterly earnings, but the one blemish on its stellar results is China.

The company's revenues there slipped 9.5% from a year earlier to slightly more than $8bn (£6.1bn).

Apple's flagship iPhone is losing market share to a slew of local competitors.

The company also faces challenges in dealing with China's strict internet censorship regime.

The iPhone is no longer king

China is important for Apple because it makes much of its hardware there, and it's a major market for its products too.

Globally, the company posted quarterly revenue of $45.4bn (£34.4bn), fuelled by the sale of 41 million iPhones.

Image copyright Getty Images
Image caption Spoiled for choice? The iPhone has lost market share as customers have shifted to cheaper alternatives.

But research firm IDC said that iPhone shipments in China fell 27% year on year in the first quarter of 2017.

The problem, it seems, is that local competitors like Oppo, Huawei and Xiaomi are cheaper, and their products have improved dramatically.

Although the iPhone had the edge a few years ago, competitors like Huawei's P10 now represent a comparable product, according to Jake Saunders, an analyst with technology market intelligence company ABI Research.

"You can buy a clone type phone for a price tag that's essentially about half as much," he said.

Changing business model

Apple may now look to apps and services to bolster revenues from the mainland, and this could bring it into conflict with China's tightening censorship regime.

Last month, Apple pulled more than 60 virtual private network (VPN) apps from its App Store in China, because of regulations that required all VPNs to licensed.

VPNs allow users to skirt around China's censorship filters and gain access to websites and services that are restricted or banned there.

During an earnings call, Apple CEO Tim Cook defended the decision, and said approved VPN apps were still available.

"We would rather not remove the apps, but like in other countries, we obey the laws where we do business," he said.

We are hopeful that over time, the restrictions we are seeing are loosened, because innovation really requires freedom to collaborate and communicate, and I know that is a major focus there."

In July, Apple established its first data centre in China, in conjunction with a local company Guizhou-Cloud Big Data Industry.

Although Apple said it would not compromise users' privacy, some critics believe housing data in China could create pressure for Apple to hand over data in future disputes.

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