In the Chinese market, one side is retreating step by step, while the other is returning with a vengeance.

Written by | Lan Dong Business Zhao Weiwei

Huawei used to be a student of Apple, but now it is a rival to Apple. Both have released new products and gone on sale on the same day after much hype in advance.

The iPhone 16 series continues to follow a stable path, with no exciting hardware changes and more focus on software-level Apple intelligence. Prices remain largely unchanged from the previous generation. Huawei introduced the Mate XT extraordinary master series, a triple-folding screen phone, priced starting at 19,999 yuan, targeting the high-end market. With over 4 million pre-orders in just 3 days, this product has become the equivalent of an "electronic Moutai."

Behind the hustle and bustle lies a calm Chinese market, with one side retreating step by step and the other returning with a vengeance. iPhone sales have declined for four consecutive quarters, while Huawei's shipments increased by 41% year-on-year in the second quarter of this year. Therefore, Huawei dominates in market share, but Apple leads in profit margins.

Apple's conservatism brought no surprises, and Huawei's counterattack came as no accident. The iPhone 16, representing Apple, and the Mate XT, representing Huawei, are both technological giants' innovative products facing the future. They also signify the future trend of the fiercely competitive mobile phone market: In a mobile phone market dominated by protagonists, there are always challengers who want to rewrite the script. When Apple begins to seek stability in innovation, Huawei aims to surpass its rivals in the high-end market.

For a long time, whether to buy Huawei or Apple has been a choice that Chinese consumers have to face. Everyone has a different answer, but given the declining replacement rate, the common future trend may be to wait a little longer.

Will Apple's AI strategy work?

Long before the iPhone 16 series was released, foreign media had already reported that Apple and NVIDIA were in talks with OpenAI.

According to foreign media reports, although it is unclear what share Apple and NVIDIA invested in OpenAI during this funding round, the round was led by venture capital firm Thrive Capital, with Microsoft also participating. This investment will become a new part of OpenAI's funding, and OpenAI's valuation has already exceeded $100 billion. This round of funding could push OpenAI's valuation to around $150 billion.

This is a deeper level of integration, and the expansion of AI capabilities will be a competitive advantage for Apple phones for a long time to come. The most significant change is in chip capability. The A18 series chip in the iPhone 16 series is known as "built for Apple intelligence," with computing power more than double that of the previous A16 chip.

In fact, compared to hardware innovations, the biggest highlight of the iPhone 16 series is Apple intelligence. However, this update was already revealed at the Worldwide Developers Conference in June this year, covering everything from smarter language assistants to smoother writing tools and image generation. Essentially, these are the combined capabilities of Apple and ChatGPT.

However, for Chinese users, Apple intelligence may not be the primary motivator for purchase.

Apple intelligence will only begin beta testing in October, and the Chinese language experience will not be available until next year. This means that even if customers buy the latest iPhone 16 series, they will have to wait until next year to experience Apple's software-level innovations in the Chinese region.

How Apple's AI capabilities will be implemented within China's policy framework remains an open question. It has been reported that Apple is seeking Chinese partners for its AI services to provide them in the Chinese market. Large model companies in contact with Apple include Baidu, Alibaba, and Baichuan Intelligence, but Apple has never confirmed these details.

Will AI change everything? If Chinese users cannot experience the most advanced large model services on the iPhone 16 series, the rationale for purchasing an Apple phone may be significantly diminished. According to IDC data for the second quarter of this year, Apple's shipments in the Chinese market have fallen out of the top five, surpassed by domestic brands such as vivo, OPPO, Honor, Huawei, and Xiaomi.

China is one of Apple's largest markets, and whether the iPhone 16 series can reverse Apple's stagnation in sales in China remains an open question.

"AI has yet to resonate with the masses," said a prominent American analyst, who cautiously optimistic about Apple's AI strategy. Apple is implementing its AI strategy prudently, focusing on private, built-in device features rather than seeking a killer, eye-catching application.

Amidst widespread pessimism about Apple's innovation capabilities, renowned investor Duan Yongping stands out as one of the few who remain optimistic about Apple's AI strategy. Apple has always been a heavily invested company in Duan's fund, currently accounting for 80% of his holdings.

"I think Apple's AI phones are just starting, and Apple has many years of growth ahead," said Duan Yongping, commenting on Apple's product launch. He felt so excited after watching the event that he vowed to take better care of his health to enjoy the products for longer. He revealed that he had already ordered Apple's new earbuds and Ultra Watch, but would wait until Friday to order the new phone.

On the question of Apple's future potential, Warren Buffett takes a different stance from Duan Yongping. In August this year, Berkshire Hathaway, Buffett's company, disclosed that its stake in Apple had fallen from 789 million shares in the first quarter to around 400 million shares in the second quarter, a decrease of nearly 50%, with its holdings accounting for 30.52% of the total.

Huawei's strong comeback

We are currently at a bottleneck in smartphone innovation. Compared to Apple's conservatism in hardware, foreign media has heatedly discussed Huawei's triple-folding breakthrough in its latest Mate XT phone. However, it has also been pointed out that Huawei's chip capability may still be a weakness, lagging behind cutting-edge technology by two to three years. Additionally, due to concerns about price and functionality, foldable phones currently belong to a niche market.

Huawei has achieved its goal of capturing the high-end market. "Apple's Chinese competitor, Huawei, has just stolen the limelight from the iPhone 16," said foreign media after Huawei's announcement. In the Chinese mobile phone market, Apple is at a disadvantage. The AI selling point of Apple's phone is temporarily irrelevant to China, and this situation may persist.

Huawei has made a strong comeback in 2024. According to Huawei's financial results for the first half of this year, its net profit increased by 18% to 55.1 billion yuan from 46.6 billion yuan last year, while revenue grew by 34% to 417.5 billion yuan, exceeding the same period in 2019 when revenue was approximately 401.3 billion yuan.

Although Huawei has not disclosed specific details of its various business segments, there is no doubt that the strong growth is attributed to robust phone sales and the automotive business. According to data from market research firm IDC, in the second quarter of this year, Huawei ranked second in China's largest smartphone market, trailing only Vivo, with a market share of 18.1%.

Throughout the first half of 2024, Huawei ranked first in China's smartphone market shipments, accounting for 17.5% of the market. Therefore, when Huawei announced its triple-folding Mate XT on the same day as Apple, the more than 4 million pre-orders in just three days served as the best proof of Huawei's strong comeback. Unsurprisingly, Huawei once again demonstrated its commitment to the high-end market with the Mate XT.

The biggest selling point of the triple-folding Mate XT is undoubtedly its 10.2-inch screen when fully unfolded. It can be folded like a Z or transformed into a laptop similar in size to an iPad. As demonstrated by Yu Chengdong, it can be paired with a foldable keyboard to become a pocket-sized tablet.

In fact, the triple-folding screen is not a new concept. Samsung previously showcased this technology in its MWC concept phone in Spain. The challenge lies in implementing this technology effectively. Huawei's Mate XT not only achieves triple-folding but also controls the phone's thickness and weight within acceptable limits for users. It challenges the yield rate of screen modules in a smaller space, requiring significant manufacturing breakthroughs.

"Ordinary consumers may be hesitant about this price, but this product demonstrates Huawei's technology," said an analyst at Canalys. Emerging from US sanctions, Huawei is making a strong comeback with domestically produced chips.

Currently, Huawei's smartphone strategy appears to be more targeted at Chinese consumers. In the foldable smartphone market, Huawei and Samsung are both leading players. However, according to Counterpoint, in the first quarter of this year, Huawei surpassed Samsung to become the world's largest foldable smartphone manufacturer in terms of shipments, and China accounts for more than half of the global foldable phone market. Since its launch in September last year, Huawei's book-style foldable phone, the Mate X5, has been the best-selling product in China.

What will the next generation of phones look like? The answers from Apple and Huawei differ for now but may converge in the future.

Just as AI is Apple's future-oriented consideration for the iPhone 16 series, the question remains how much incremental growth the foldable phone market can contribute to Huawei in the future. The answer may be just around the corner.

It has been rumored that Apple will launch a foldable phone in 2025 or 2026, and the company is already making relevant technical preparations. According to IDC projections, shipments of foldable phones in China this year will reach approximately 10.68 million units, a year-on-year increase of 52.4%. By 2028, shipments are expected to exceed 17 million units, with a five-year compound annual growth rate of 19.8%.

AI is also an integral part of Huawei's strategy. The triple-folding Mate XT does not delve deeply into AI features, with limited mentions of AI photo editing and the virtual assistant Xiao Yi. However, at Huawei's Developer Conference in June, the company unveiled its HarmonyOS native intelligent ecosystem, powered by the Pangu large model 5.0. This deep integration of AI capabilities with various HarmonyOS subsystems enables intelligent image processing, intelligent calls, intelligent document management, cross-application collaboration, and more.

In fact, more attention is focused on Huawei's next-generation flagship product.

In August last year, Huawei quietly unveiled the Mate 60 Pro, a flagship phone equipped with the Kirin 9000S chip that truly shocked the industry. For the smartphone industry, even more anticipated is Huawei's next-generation Mate 70 flagship phone, targeted at the mainstream market in the fourth quarter of this year, rather than the current Mate XT aimed at the niche high-end market.

Therefore, the competition between Huawei and Apple will ultimately depend on whether the gap between them widens or narrows by the end of this year or next. The answer to this evolving question will determine the height that smartphones can reach in terms of technology and application.