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Apple released a new range of iPhones on Tuesday — but none of them had 5G capabilities. That, together with a hefty premium that Chinese users must pay for the latest iPhone 11 series, could hurt the U.S. technology giant's performance in China, analysts told CNBC.
The world's second-largest economy is a crucial market for Apple but it has struggled in recent times. In the second quarter, its China market share dipped to its lowest level in a year, according to Counterpoint Research. Shipments of iPhones also declined, the analysis showed.
One of the problems Apple had with the last iPhone series — the XR, XS and XS Max — was the premium pricing which put off some Chinese consumers. But Apple's new iPhone 11 range still has a hefty price tag in China.
Compared with the prices in the U.S., Chinese consumers have to pay a premium that's between 10.5% and 12.5% for the iPhone 11, and 18.6% to 23% more for the iPhone 11 Pro and Pro Max, according to an analysis by CNBC.
Compared to last year's XR — the equivalent of the new iPhone 11 and the cheapest of the range, the premium was 28%. So that has come down significantly. But the premium for last year's XS and XS Max was around 26% — not too much higher than the iPhone 11 Pro and Pro Max.
In January, retailers in China cut the prices of last year's iPhone models. Months later, Apple announced its official price slash.
Analysts say that it appears Apple hasn't learned its lesson.
"Apple, after ten years of operations in China with local manufacturing, still commands a ~20% premium which is quite high for a market less developed in terms of per capita spend than U.S.," Neil Shah, research director at Counterpoint Research, told CNBC.
However, the iPhone 11 might find some love in China, given the premium is lower than the Pro and Pro Max and compared to the XR.
The price "might not matter as much for the high-end models, since those buyers tend to be hardcore fans and status-conscious users who will buy them anyway," Bryan Ma, vice president of devices research at IDC, told CNBC. "The more important one to look at is the 11 (XR replacement), which is reasonably priced for the market. I would think that Apple focused its pricing strategy on that model too."
Daniel Ives, managing director of equity research at Wedbush Securities, said he believes roughly 60 million to 70 million Apple users are due for an upgrade in China. Of course, not all of them will choose to upgrade to the newer phones.
Still, Shah of Counterpoint Research, said he expects Apple shipment volumes to "barely cross" 30 million units this year, down from the 65 million at its peak in 2015.
"So while the market has grown, Apple's share has been declining and the user base is stagnant coming from new phone additions. Most additions are from refurb, second hand or used phones in circulation," Shah said, referring to refurbished phones.
Apple's iPhone 11 series did not have a phone capable of connecting to 5G networks. These are next-generation mobile networks that promise super-fast data speeds with the ability to support technologies like driverless cars.
5G networks are slowly being rolled out around the world and in China they are slated to come online as early as this year.
Apple's rival Huawei will have two 5G smartphones on the market in China this year, while Xiaomi also currently has one on sale. Apple was not expected to release a 5G iPhone this year but some predict the company may do so in 2020.
However, with 5G networks being built in China and the Chinese consumer known for looking for cutting-edge features, Apple could be at a disadvantage against local rivals.
"While I didn't expect it, I think the lack of a ... 5G modem option will hurt sales in China," Patrick Moorhead, founder of Moor Insights & Strategy, said in a note on Tuesday.
5G networks take time to roll out and widespread coverage is not instant. But over the next few years, they will offer a wider area of coverage and reliability. Apple is waiting for this to happen, analysts said.
"The lack of 5G is little surprise. Whilst it stands to impact Apple in key markets such as China, Apple has opted to echo its approach with 3G and 4G by waiting for networks to be established so it can deliver 5G at scale with maximum impact," Ben Wood, chief of research at CCS Insight, said in a note on Wednesday.
Apple is also facing some broader issues in China related to the trade war with the U.S.
With Huawei in the crosshairs of the U.S. — and facing restricted access to American technology — the Chinese firm has increased focus on its domestic market. In the second quarter, Huawei upped its focus on China and saw shipments surge to record levels.
Tariffs also continue to be a black cloud hanging over Apple given the fact that the majority of iPhone assembly takes place in China.
Apple's iPhone was bracing for a 10% tariff starting September 1, until President Donald Trump announced a delay. That tariff will now come into effect on December 15.