Apple is hot in China again, but it won’t overtake Huawei anytime soon

Apple saw a huge boost in iPhone sales in China last month, but embattled tech giant Huawei won’t giving up the top spot anytime soon.

Sales for the iPhone jumped 18%in Decembercompared to the same month a year earlier, according to data from the China Academy of Information and Communication Technology. The news beat Wall Street projections and sent Apple shares to a record high on Thursday.

But Apple (AAPL) has been losing ground to domestic rivals in China for years, and analysts say that trend is unlikely to change.

The biggest reason is because Apple sells expensive phones to wealthy customers. That only allows Apple to go after so much of the market, since competitors like Huawei and Xiaomi offer a bigger range of phones at varying price points.

By launching three iPhone 11 models last year — the least expensive version cost 3,999 yuan ($578) — Apple was able “to boost [China] sales in the short-run,” said Louis Liu, an analyst with market research firm Canalys.

“However, from the long-term perspective, Huawei will still dominate the Chinese market across price segments,” he said.

Huawei sells a lot of cheaper phones

When it comes to the sheer number of smartphones sold in China in the third quarter of 2019, Huawei wasNo. 1 with about 42% of the market, and Apple is No. 5 with between 5% and 8%, according to the most recent data from both IDC and Canalys. The two firms are independent and use slightly different methods to measure smartphone shipments.

Most sales by Apple’s Chinese competitors are cheap smartphones — about 90% of Huawei’s handsets sold in China for the 12 months ended in September cost less than$600, according to IDC data.

But Huawei has been particularly successful at winning over consumers who want to pay between $600 and$800 for a flagship phone, a market that Apple vacated when it began pricing iPhones above that range, according to IDC analyst Kiranjeet Kaur.

Sales in China are important for Huawei. The company has to fend off domestic rivals with cheap phones, and aggressively push pricier flagship devices that can compete with Apple in its home market as overseas sales come under pressure from a US trade blacklist.

Washington placed Huawei on a trade black list last May, barring US firms from selling the company key tech and software. The ban means that Huawei’s smartphones no longer have access to Google (GOOGL) services, such as the Play Store and popular apps like Gmail, YouTube and Google (GOOGL) Maps.Although that doesn’t matter in China, since phones sold there don’t have Google (GOOGL) anyway, the lack of Google (GOOGL) services elsewhere has caused Huawei’s overseas smartphone sales to take a beating.

“Most overseas sales were high-end, and in China, to drive volume, they have to push more lower end-handsets,” Kaur said.

Apple’s strategy is all about premium

For Apple, though, those low-end smartphones don’t matter.

The California company has slowly increased the average price of an iPhone since 2007, and it madea bigger leap than usual in 2018 when it priced the iPhone X at $999.Apple was betting big that customers have an appetite for expensive iPhones.

It seems to be paying off in China. With its reputation as a premium brand, Applecan sell a lot fewer phones than rivals like Vivo, Oppo and Xiaomi, and still take a bigger bite out of the China market, according to IDC data.

Looking at the dollar value of China’s smartphone market, Huawei is still No. 1, with 43% of market share, according to IDC, but Apple comes second with 21%.

That means Huawei needs to sell more than twice as many phones in its home market to make the same money in sales as Apple.

There is at least one area that Apple has yet to compete in that will almost certainly be critical to its long-term success, in China and elsewhere: 5G, the next generation of super fast wireless networks.

Huawei has already launched several 5G models in China. But Apple’s 5G device won’t launch until September, “which creates a big gap for Huawei to attract more consumers,” according to Liu, of Canalys.

Other Chinese smartphone makers including Oppo, Xiaomi, Vivo and ZTE (ZTCOF) have also launched 5Gphones.And Samsung (SSNLF), the world’s biggest smartphone maker, said earlier this month that it now accounts for more than half the global 5G smartphone market — although it has virtually no market share in China.