Produced by | Tiger Sniff Technology Group
Author | Maruto Mountain
Edit | Miao Zhengqing
Header | Visual China
Apple's Chinese market and the global market seem to be splitting into two opposite mirror worlds: how surprising the global market is, how lonely the Chinese market is.
On the morning of August 2, Beijing time, Apple released its financial report for the third quarter of fiscal year 2024 (that is, the second quarter of 2024), during which the company achieved total revenue of $85.777 billion, a year-on-year increase of 5%, the highest second quarter in history; net profit was 21.448 billion US dollars, a year-on-year increase of 7.88%; Diluted earnings per share were $1.4, up 11% year over year.
Almost all of these excellent financial figures were higher than the consensus estimates, but one data was particularly glaring: Greater China fell 6.5% year-on-year to $14.73 billion, becoming Apple's only major market to decline.
Apple's decline in the Chinese market doesn't end there.
In a conference call after the earnings release, Cook said that "we are very excited about the record high iPhone install base this quarter", but according to statistics released by IDC, a third-party research agency, in the second quarter of this year, Apple's market share fell out of the top five positions for the first time in China's smartphone market in the second quarter of this year, and was included in the "others" industry.
Also plaguing Cook is the cadence of Apple Intelligence's deployments. This week, the iOS 18.1 version was officially released, and some users can already get a sneak peek at some of the features of Apple Intelligence, but there is growing evidence that the most anticipated "Chat GPT version of Apple Intelligence" will be delayed.
As for the "Chinese version of Apple Intelligence", which domestic users are most concerned about, Cook continued to maintain the principle of vagueness, only saying that "we have been in contact with regulators, including China and the European Union, and Apple hopes to make relevant features available to users in all regions." ”
At least for Chinese users, Apple's pie drawn on AI is really about to run out.
The embarrassing "double kill of quantity and price"
Since the third quarter of last year, Apple's revenue in Greater China has fallen for four consecutive quarters.
However, unlike in the past few quarters, the current market environment for smartphones and PCs is much better. According to IDC statistics, in the second quarter of this year, China's smartphone shipments increased by 8.9% year-on-year, except for OPPO and Honor, which fell slightly, and the shipments of other domestic brands rose sharply.
Against this backdrop, Apple has still not been able to end its decline in China. The core reason is that the current iPhone has actually been absent in some market segments and leading applications.
According to IDC statistics, the total shipment of domestic folding screen models in the second quarter of this year reached 2.57 million units, a year-on-year increase of 104.6%. In fact, this market has gone through the stage of "user education", and there has even been a precursor to a "price war", but Apple's folding screen mobile phones still only appear in the revelations of various overseas media.
Although many practitioners have told the author that most of the folding screen models on the market are in a state of "making money at a loss" because of the high R&D costs, it cannot be denied that at present, only folding screen mobile phones can bring stable market increment to manufacturers.
The other missing is AI. Since the beginning of this year, domestic mobile phone manufacturers have followed in the footsteps of PCs to put forward the concept of "device-side AI", which is different from the system-level application of Apple Intelligence, and domestic practitioners pay more attention to the development of scene applications, such as image beautification, intelligent writing, recording summarization and other functions.
Sometimes, the interpretation of AI by domestic manufacturers even only appears in those specific use scenarios, such as the "AI elimination function" that is basically available on new machines, which is used to eliminate the background crowd in the user's travel pictures.
While these features may not sound as exciting as the grand narrative of Apple Intelligence, they can be an important factor for mass users outside of the Apple ecosystem.
In addition to the above reasons, another factor that has to be mentioned is the strong comeback of Huawei.
In April this year, after the release of the Pura 70 series, some institutions predicted that the stock volume of the Pura 70 would be slightly higher than that of the Mate 60 series, reaching 13 million to 15 million units, but a month after the release of the model, a channel provider told the author that the shipment of the Pura 70 has far exceeded the performance of the Mate 60 in the same period.
Reflected in the data, according to Canalys statistics, Huawei's shipments in the domestic market reached 10.6 million units in the second quarter of this year, a year-on-year increase of 41%. Considering the overlap between Apple and Huawei in the high-end smartphone market, Apple's decline in domestic sales is not unrelated to the latter.
In the conference call of the last fiscal quarter (Q1 2024), Cook mentioned that "the Chinese market has always been the most competitive market in the world", and Apple's competition in China seems to be more passive in this quarter.
It's not that Apple doesn't fail to see these potential threats. In May this year, Apple officially began to reduce the channel price of the iPhone 15 series, during this year's "618 promotion", Apple opened the largest price reduction in history, with a full range of discounts ranging from 1400-2300 yuan, and the promotion of third-party channels should be greater, but even so, Apple still failed to reverse the situation of "both volume and price".
Even from a global perspective, the iPhone 15 series has not performed as well as it should. According to the financial report, the revenue of the iPhone business in the quarter was 39.296 billion US dollars, a decrease of 0.94% from the same period last year.
High gross margins are about to peak?
It is foreseeable that before the release of the iPhone 16, Apple has no effective means to boost iPhone sales, and in addition to the iPhone, other hardware revenue is also mediocre.
By business, Mac revenue for the quarter was $7.009 billion, an increase of 2.4% over the same period last year; The revenue of wearable and smart home business was US$8.097 billion, down 2.3% from the same period last year.
In hardware revenue, the iPad has become the one that has turned the tide. Revenue for the period reached US$7.162 billion, an increase of 23.7% over the same period last year. This was mainly due to the renewal of the iPad Pro lineup, which made it the main driver of hardware revenue in the quarter, well above the previous industry consensus of $6.22 billion.
However, it should be noted that the main reason for the significant increase in iPad revenue this quarter is that the product line has not been updated for 18 months before the release of the new iPad Pro, and although the introduction of OLED screen and M4 chip makes the new iPad Pro the most upgraded hardware product of its kind, it has also overdrawn users' future replacement needs to a certain extent.
It's also worth mentioning the software services business. Apple's software service revenue hit a record high of $24.213 billion in the quarter, a year-on-year increase of 14%, another record high, and its proportion of Apple's total revenue also further increased to 28.23%.
But in the midst of high growth, Apple's software services business also has a hidden concern.
First of all, it should be noted that according to Apple's statistics, Apple Music, iCloud, Apple Pay, Apple Card, and ads are all included in this category, and the highest proportion is the 30% transaction commission charged by users when making "in-app purchases", which is known as the "Apple tax".
In many countries, a boycott of the "Apple tax" has become trendy, led by official regulators.
Take the European Union as an example, since last year, the European Union has imposed many restrictions on Apple through the Digital Markets Act. So far, Apple's concessions in the EU include:
- Starting with iOS 17.4, third-party app stores will be opened to users in the EU
- Reduced the "Apple tax" for developers in the EU from 30% to 17%
- Development of NFC payments to third parties free of charge
Outside of Europe, the governments of Japan and Korea are also drafting bills to reduce or limit the "Apple tax".
According to the data, compared with the past three quarters, although the revenue of software services has grown steadily quarter-on-quarter, the growth rate has slowed down.
It is worth mentioning that Apple's gross profit margin in the hardware business has basically not changed in recent years, maintaining around 36%-37%, but the overall gross profit margin has reached a historical high of 46.1% driven by software services.
With AI, everything is fine?
In a post-earnings conference call, Cook excitedly said that "Apple Intelligence provides users with another compelling reason to upgrade."
But at the same time, Cook also revealed a key piece of information: the integration of ChatGPT and Siri is expected to be completed by the end of this year, and Apple is planning to roll out the Apple Intelligence feature in stages.
This also seems to confirm the judgment of Mark Gurman and others that Apple Intelligence will be postponed. If Apple Intelligence is not available pre-installed on the iPhone 16 released in the fall, it may have a certain impact on its sales.
In addition, Cook still did not give a positive answer to the question of how Apple Intelligence will land in China.
Of course, for this, the industry has not had much hope before, in Chinese mainland, Apple's cooperation with third-party large models has become a sure fact. However, it remains to be seen what kind of gains these domestic third-party models can bring to iOS. Referring to the Samsung S24 model that has been launched in China, although it is equipped with functions tailored for it by Baidu, Meitu and other companies, the market response is relatively average.
This involves a "search source" problem: the Gemini Nano model carried by the overseas version of the S24 model, its search source is "all the web pages that can be found on Google", compared to the domestic custom model, which is much more limited in search source.
What's more, even if the domestic iPhone models are equipped with "local third-party models", Apple will definitely retain the basic functions of Apple Intelligence, such as voice assistants.
But this again raises the issue of "models calling each other". For example, a voice assistant can be used to call up a function that needs to be connected to a third-party model API. Previously, some industry insiders told the author that the current trend of smart terminals is that the traditional GUI (graphical operation interface) is constantly diluted, accompanied by the enrichment of interactive forms and the reduction of application operation levels, which require high-frequency access of different models.
According to Apple's tonality, a closed and deeply integrated ecological structure is the premise for all products to be brought to the market, which is a big challenge for Apple.
Even ignoring the special situation of the Chinese mainland market, considering that Apple Intelligence has not yet shown the characteristics of a "killer app", it seems that there is a question mark over whether users will be able to buy it in the future.
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