September 8, 2017 2:02 am JST

New iPhone leads Apple's Chinese comeback bid

US tech giant combines upmarket strategy with legal maneuvering targeting rivals

YUICHIRO KANEMATSU, Nikkei staff writer

Apple's Chinese market share is languishing in the single digits. © Reuters

DALLAS, U.S. -- The next iPhone, expected to pack more features into space freed up by a thinner display, may hold the key to reviving Apple's fortunes in a Chinese market where fast-growing local rivals have crowded the American giant out.

Apple's Chinese sales have slumped for six straight quarters. Its share of smartphone shipment volume in the country sank to 7.1% in the April-June quarter, dropping the company to fifth place, data from research firm IDC shows.

But Apple still dominates the Chinese market for premium handsets, with a share topping 80% in the 4,000 yuan ($615) and up price range, according to JL Warren Capital, an American research firm focused on China. The new model to be announced Tuesday will sharpen Apple's focus on the market's high end.

Apple likely will play up the usability and feel that come from the company's proprietary components and iOS operating system, trying to give the device an upscale image that rivals' offerings may lack. China's top smartphone maker, Huawei Technologies, is developing its own processor for a new high-end handset. But others such as second- and third-ranked Oppo and Vivo rely on outside sources for these chips, particularly U.S. producer Qualcomm. Chinese smartphone makers also use Google's Android operating system.

The new iPhone is expected to use a slim organic light-emitting diode display, freeing room to add new functions such as facial recognition and wireless charging.

Legal maneuvering

The U.S. tech company also is targeting rivals' dependence on Qualcomm. Apple sued the chipmaker in the U.S. in January, alleging that Qualcomm charges unfairly high patent licensing fees to Apple suppliers. The smartphone giant has since escalated the dispute by halting reimbursement payments to four contract manufacturers, including Taiwan's Hon Hai Precision Industry, to try to force them to stop paying the royalties.

Apple contends in the U.S. lawsuit that the royalties should be brought in line with the value added by the licensed technology, rather than the prices of the mobile devices. Should Qualcomm lose the lawsuit, it would be forced to lower royalties for Apple manufacturers or charge Chinese customers more. The chipmaker probably will need to opt for the latter to preserve its profit margins. This is Apple's real goal, rather than lowering its own costs, a senior Qualcomm executive argued, pointing to Apple's $260 billion cash pile.

Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
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Industry:
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Computer Peripherals
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