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Apple's US$44 billion China market threatened by Trump's WeChat ban

Its strategy of offering cheaper devices may fail if it can't offer WeChat

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WeChat connects a billion users globally and is used for everything from chatting with friends to shopping and utility bills.

Hong Kong

APPLE Inc spent years building China into a US$44 billion growth driver. Then the US president last week cast all that in doubt.

IPhone loyalists across China are now reconsidering their attachment to the device after Donald Trump issued an executive order last week barring US companies from doing business with WeChat, the super-app that has become integral to everyday life in the country. Scheduled to come into effect in roughly five weeks, the ban threatens to turn iPhones into expensive "electronic trash", said Hong Kong resident Kenny Ou, who sees WeChat as one of the most essential software on his handset.

On Wednesday, Tencent executives on a post-earnings conference call stressed that they believed the ban applied only to WeChat in the US and shouldn't affect its Chinese cousin, known as Weixin. But they added that they themselves were still seeking clarity, and the sweeping language of Mr Trump's order means it could still spell trouble for Apple.

The US company has just come off a strong quarter in China, its most important international market and where it is facing intensifying competition from local Android rivals like Huawei Technologies Co - which, unlike Apple and its locked-down app stores, are free to either offer WeChat directly or allow their users access to download it themselves. The Cupertino company's strategy of tapping first-time buyers and wooing back consumers with cheaper devices like the iPhone SE could be entirely derailed if it can't offer WeChat and US-China trade tensions continue to worsen.

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Tencent Holdings' flagship app connects a billion users globally and is used for everything from chatting with friends to shopping for movie and train tickets to paying restaurant and utility bills.

While questions remain on how Mr Trump's orders will be implemented, any ban on the use of WeChat threatens to cut off a key communication link between China and the rest of the world and prevent US companies like Starbucks Corp and WalMart Inc from reaching consumers in the world's second-largest economy.

If Apple was forced to remove the service from its global app stores, iPhone annual shipments will decline 25 per cent to 30 per cent while other hardware, including AirPods, iPad, Apple Watch and Mac computers, may fall 15 per cent to 25 per cent, TF International Securities analyst Kuo Ming-chi estimated in a research note. Apple didn't immediately respond to requests for comment.

A survey on the twitter-like Weibo service asking consumers to choose between WeChat and their iPhones has drawn more than 1.2 million responses so far, with roughly 95 per cent of participants saying they would rather give up their devices. "The ban will force a lot of Chinese users to switch from Apple to other brands because WeChat is really important for us," said Sky Ding, who works in fintech in Hong Kong and originally hails from Xi'an. "My family in China are all used to WeChat and all our communication is on the platform."

Apple's iPhones were first launched in China in 2009, two years after sales began in the US, and the company has shipped more than 210 million units in the country over the past five years, according to Bloomberg calculations based on IDC data. More than a fifth of all smartphone users in China used an iPhone as of June, second only to Huawei at 26 per cent, according to researcher QuestMobile. The company has 42 stores in the country that also hosts most of the world's iPhone manufacturing. And at its peak, Greater China accounted for 25 per cent of Apple's revenue though that share slipped to 17 per cent in the last fiscal year, with sales in the region amounting to roughly US$43.7 billion.

Apple had been counting on the next generation of its flagship handset - expected to be launched in October and the first in the series to feature 5G - to woo potential customers.

Ready to fill the iPhone void will be a legion of high-spec, high-value 5G devices from local brands Xiaomi, Oppo and Vivo as well as market leader Huawei. Xiaomi just announced the Mi 10 Ultra flagship, destined solely for China, and it has a full portfolio of devices to replace Apple's range, including fitness-tracking watches, wireless earphones, tablets and laptops. BLOOMBERG

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