Chinaâ€™s smartphone upgrade market is waning, as the number of consumers who planÂ to purchase a new smartphone continues to decline,Â accordingÂ to a new study by Penguin Intelligence, a Tencent-backed research organization in China.
The lengthening upgrade cycle will make Chinaâ€™s smartphone market a less reliable source of revenue for industry players, including device makers and app developers, that rely on users having theÂ most up-to-date handset.
In particular, the report paints a dire picture for Appleâ€™s efforts in China:
- iPhone users are less willing to upgrade to a new device.Â Sixteen percent of iPhone users in 2017Â plan to upgrade to a new handset each year, a decline of 43Â percentage points year-over-year (YoY). Meanwhile, 24% of consumers using Android-powered smartphones plan to purchase a new handset each year, down 31Â percentage points YoY.
- iPhone users switching to Android phones prefer Huawei devices.Â Of the formerÂ iPhone owners who switched to Android, 42% opted for a Huawei device. The Chinese smartphone vendor, which recently overtook Apple as the second-largest smartphone vendor globally, is making headway in the high-end smartphone market.
This is troublesome for the company, which relies heavily on China as a source of revenue and growth.Â China is Appleâ€™s largest market outside the US, accounting for over one-fifth of Appleâ€™s total revenue in the 2016 fiscal year. The country also accounts for Appleâ€™s largest source of iOS app revenue,Â accordingÂ to App Annie.
But Apple is expandingÂ its reach outside of Chinaâ€™s Tier 1 and Tier 2 cities, which could present a big growth opportunity.Â Thirty-nine percent of iPhone users in China live in Tier 3 and Tier 4 cities. In comparison,Â nearly 96% of iPhone users lived in Tier 1 and Tier 2 cities in 2010. Over time, the number of middle class consumers in rural areas will increaseÂ â€” by 2021, Chinaâ€™s middle class willÂ grow toÂ half a billion people. It would be in Apple’s best interest to maintain its presence in these markets.
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