Apple and China: Data on iPhone X Launch and Chinese iCloud Transition

There are two interesting narratives surrounding Apple and China. One around the launch of the iPhone X and the “supercycle” analysts hoped for which was going to require the Chinese market to participate. The other is around Apple having to transition to localized Chinese servers for iCloud.

Analyzing the iPhone X Launch
I see a lot of the same data Apple does on consumers in many of the markets they compete and China included. I can say with certainty, the Chinese market (while reaching maturity) is an ever-changing landscape when it comes to Chinese consumer behavior. Basically, we keep learning new things about Chinese consumers. Looking at year-over-year behavioral comparables has not proven as helpful in the Chinese market as it is has been with Western markets. I know this, and I know Apple does as well.

Keeping that in mind, the prevailing wisdom was that when Apple changes the form/design of an iPhone they saw a swing in their favor in the buying habits of Chinese consumers. We saw this when Apple moved from the 4″ iPhones to the 4.7″ and 5.5″ models with iPhone 6 and 6 Plus. That single design change moved the needle for Apple in China as consumers scrambled to purchase the new form factors. As iPhone sales began to slow and upgrade cycles by iPhone owners in China began to slow, most believed all Apple needed to do was change the design and the Chinese market would jump start again.

While it is still early, and the iPhone X launch delay threw a wrinkle in nearly everyone’s analysis, the most recent data I have shows the newest lineup up iPhone 8, 8 Plus, and iPhone X is off to a slower start than previous launches through December in China. Here are two charts.

This data comes from local Internet giant Baidu and ranks specific devices as a share of that operating system accessing Baidu’s Internet services like apps and search. Each device is measured as a percentage of that platforms total. So a specific devices reading of 5% says that device is 5% of all iOS devices accessing Baidu’s services.

What we see is the combined launch of iPhone 8, 8 Plus, and iPhone X, represents a smaller share of total iOS devices than previous year launches. Now, the delay in iPhone X launch is likely a factor here which is why analyzing the same data come March will be the best predictor of success. The one thing that stood out to me in the granular of this data was the iPhone X had the single largest month-over-month percentage gains from Nov to December than any previous device launch. The previous record was the iPhone 6 Plus which jumped 195% from October 2014 (launch month) to November 2014. iPhone X jumped 252% from November 2017 (launch month) to December 2017. This single statistic is what causes me to believe that had the iPhone X launched alongside the 8 and 8 Plus in late September, the China data would have been much stronger for the whole December quarter in terms of iPhone sales.

I take the long view for Apple in China, and I am pretty sure Apple does also. We do not see much churn in the way of Apple customers leaving for Android brands. We do continually see switchers to iPhones coming from lower economic tiers of China which is a promising sign. I don’t think Apple worries about “supercycles” but I do wonder if some of the rumored devices (Bloomberg report from yesterday), if true, which may come out this fall will play into some of the changing dynamics of the Chinese market landscape.

Apple’s long game for China is strong and I’m not worried. But, as I mentioned, watching this market change before our eyes and challenge things we thought we knew is fascinating. Must be on your toes to compete in Chian, that is for sure.

Apple’s iCloud Transition to Chinese Servers
There is a lot going on here to unpack. The Chinese government passed a law that requires foreign countries to have localized server data hosted and run within the country. While many details of this new law aren’t public, a result is Apple having to move iCloud data to servers in China and co-manage them with a local Chinese company called GCBD. Apple pressed China on this law, fought it best they could, but ultimately have to comply since they are subject to the laws of the countries they compete in.

Many are speculating this is Apple caving to China’s rigorous monitoring and invading of the privacy of their citizens. However, Apple released a public statement on this development, and I found this part interesting:

In the new arrangement, Apple will establish a new data center with GCBD. Apple has not created nor was we requested to create any backdoors and Apple will continue to retain control over the encryption keys to iCloud data. As with other countries, we will respond to legal requests for data that we have in our possession for individual users, never bulk data, and when we provide data, we will continue to include the requests in our semi-annual transparency reports.

I emphasized the sentence in bold to draw your attention to it. Apple has not handed the security codes over to China in this transition. Meaning, China can’t go sifting through Apple consumers iCloud data whenever they please. Apple states all that data is still encrypted and only Apple holds the keys. Apple states they will respond to individual requests just like in other countries and will report those requests publicly. Meaning, we should expect to see a report as to how many requests China made to Apple on its citizens. That will be interesting.

Understanding that all Chinese iCloud data remains encrypted, and only Apple holds the keys, and that they will not give batch access to those keys to the Chinese government, you could argue, using iCloud is one of–if not the–only services Chinese consumers can use and still maintain some level of privacy from their government.

Apple’s statement on this matter clarifies their transparency with Chinese iCloud users and showing them how to transition off iCloud if they so choose. Which I find it hard to believe they will given anywhere else they take their data is likely an open door for the Chinese government. While Apple is complying with the Chinese government, Apple is as closed of a door option for privacy any Chinese consumer has in the region.