WWDC 2017 preview: Exploring Apple’s strategic threats

One of the top questions clients ask Bernstein’s Sacconaghi about Apple is “What is happening in China?” The resulting “investment controversy” has become known as Apple’s “China Problem.

Warren Capital estimates that iPhone sales in China fell 14 percent from the year-ago period in April.

“There is no doubt that the iPhone is not selling well in China currently,” Longbow analyst Shawn Harrison wrote in a recent research note. “Domestic [manufacturers] are taking share, particularly Huawei. However, many people are waiting for the new iPhone.”

But another issue is that one of Apple’s main value propositions — an easy-to-use, integrated software system — holds less appeal in China.

Ben Thompson, the author and founder of Stratechery, explained last month. “The fundamental issue is this: unlike the rest of the world, in China the most important layer of the smartphone stack is not the phone’s operating system. Rather, it is WeChat.”

In fact, WeChat received about 29 percent of all the time spent in mobile apps in China on an average day last month, according to data in Mary Meeker’s 2017 Internet Trends report published last week.

“Naturally, WeChat works the same on iOS as it does on Android. That, by extension, means that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone,” Thompson wrote.

Last year’s WWDC event provided clear appeals to the Chinese market, including iMessage apps, and “Scribble” written characters in messages — convenient for writing Chinese characters. Building out these resources could be key for Apple, Thompson wrote.

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