A sketchy report, citing sources in the upstream supply chain, says Apple may create a China-specific iPhone with an under-display fingerprint sensor as a cheaper alternative to Face ID.
Face ID is an expensive feature in terms of component cost, requiring special infrared emitters and receivers housed within the notch and paired with a fast processor. But a new iPhone “tailored for Chinese consumers” and featuring an under-display fingerprint sensor would help the Cupertino tech giant “save on costs,” according to a report published this morning by English-language Chinese media outlet The Global Times, citing a report by caijing.com.cn.
This is a very sketchy report so don’t take it for granted.
The story estimates that the infrared emitter that Apple is using for Face ID costs approximately several hundred yuan, translating to several tens of dollars (in line with teardown reports and analyst estimates). An anonymous source in Beijing told the Global Times that only Apple can afford such a pricey component but cautioned that using it would further undermine Apple’s sales and position in the Chinese smartphone market.
In other words, rather than sacrifice some of its crazy high margins that are the envy of the industry, Apple’s leadership is considering taking away the most prominent new hardware feature in past two years and replace it with a cheaper and, by all accounts, inferior technology in an effort to revitalize sales in the 1.4 billion people country.
Apple has lost many Chinese users who prefer smartphones priced at around 5,000 yuan ($731), indicated by an increase in purchases of local brands including Huawei, OPPO and Vivo. Huawei shipped the largest number of phones in the Chinese market with a 34 percent share in the first quarter, followed by Vivo with 19 percent, OPPO with 18 percent, Xiaomi with 12 percent and Apple with 9 percent, showed data from the global industry consultancy Counterpoint Research.
Apple has attached great importance to the Chinese market but has been under continuous cost pressure amid the trade war, industry insiders said. They noted that in rising competition with local rivals, the US company was anxious to reduce production costs as it cannot afford to lose the Chinese market.
I told you this was an incredibly sketchy story.
To give you an idea of the scope of Apple’s iPhone troubles in China, consider for a moment the fact that the average price of smartphones sold in China last year was 2,523 yuan, or approximately $367. Furthermore, industry sources estimate that smartphones priced at more than 4,000 yuan, or about $582, only accounted for thirteen percent of the total sales during the same period. And as if that weren’t enough, domestic brands accounted for nearly 30 percent of smartphone sales last year, with a rising trend.
With that in mind, it’s only natural that Apple would want to cut production costs in order to maximize shareholder value but creating a sub-par iPhone for China is a bad idea. Competitive landscape is changing and local competitors like Huawei have gone from producing low-cost or good-enough handsets to matching or one-upping Apple in terms of hardware advances like custom processors, top-notch displays, AI-powered cameras and so forth.
That said, I don’t believe there’s a clear path forward for Apple’s prospects in China.
Apple’s always been a high-end aspirational brand that just cannot compete on price with a myriad of lower-value brands that may or may not still be in business a few years from now. I wouldn’t want to be in Tim Cook’s shoes: Apple’s leadership is in a delicate position where it needs to decide whether chasing market share in China is worth undermining its brand.
On the other hand, Apple is reportedly shifting production of the new Mac Pro from the US to China, and that’s a pure cost-cutting measure that will help reduce shipping costs for components considerably given that many of its suppliers are from China.
One thing is certain: with iPhone sales having plateaued a few years ago and no end in sight to the recent trade war, Apple definitely finds itself transitioning from a company dwelling on its past hardware successes to one eager to monetize its massive user base with services.
What do you make of this report?
Could a Face ID-less iPhone that cost less than the current models help turn the tide of iPhone sales in China, do you think? Or does Apple need to thoroughly revisit its pricing strategy in light or competitive pressure and the US-China trade war?
Let us know by leaving a comment below.