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Will Apple’s Struggle in China Continue?

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YunOS set to dethrone iOS in China

Alibaba (BABA), Apple’s (AAPL) new competitor in China (FXI), is aggressively pushing its alternative mobile operating system, YunOS, in the domestic market. According to a South China Morning Post report, YunOS is set to finish the year as the second-largest mobile operating system in China, overtaking Apple’s iOS.

YunOS is expected to run more than 100 million smartphones in mainland China this year, giving it a 14% share of mainland China’s smartphone operating system (or OS) market. YunOS’s surge could complicate Apple’s business in China, which is a key market for the iPhone, Apple’s most important product.

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A Gartner report showed Huawei, Oppo, and BBK gained market share in China in 3Q16. These three brands took advantage of Samsung’s Galaxy Note 7 recall due to the risk of explosion. Although Apple had the opportunity to sell more iPhones and grab a larger share in China’s premium smartphone segment, it just managed to defend its share. 

Sales fell 30% in Greater China

Apple’s (AAPL) revenue from Greater China, which includes China, Hong Kong, and Taiwan (EWT), fell 30% YoY (year-over-year), from $12.5 billion in fiscal 4Q15 to $8.8 billion in fiscal 4Q16. Revenue from China (FXI) fell due to the sluggish Chinese economy, the saturation of the smartphone market, and the strong US dollar.

China, which accounted for over 18% of Apple’s revenue in fiscal 4Q16, is Apple’s third-largest market, after the Americas and Europe. Apple has faced falling sales and revenue in China since the start of the year. Sales fell 24% YoY in fiscal 2Q16 and 33% YoY in fiscal 3Q16. China was previously Apple’s second-largest market.

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