Apple (AAPL)'s iPhone 16 launch is clouded in China by competitive pressure from local players and uncertainty over when the country might get access to its Apple Intelligence feature, according to analysts.

Hours after the US consumer electronics giant is expected to launch its iPhone 16 line-up on September 9, California time, Huawei Technologies will have its own event, where it is expected to unveil its 'tri-fold' smartphone with two hinges. Richard Yu Chengdong, the chairman of Huawei's global business group, said the company will launch "the most leading, innovative, and disruptive" product at the event scheduled for September 10, China time.

Apple has already been facing mounting pressure in China, one of the company's most important markets, and recently fell out of the top five vendors by shipments. Its challenges could be exacerbated with the iPhone 16 given uncertainty around its ability to offer Apple Intelligence in the country. The built-in artificial intelligence (AI) is powered in part by OpenAI's GPT large language models (LLMs), which cannot be made commercially available in China.

"iPhone will continue to see erosion [of its market share] in the premium segment by Huawei and other Chinese brands," said Ivan Lam, senior analyst at consultancy Counterpoint Research.

Apple saw its sales dip 5.7 per cent in the Chinese market in the second quarter despite an overall 6 per cent sales increase over the period owing to recovering consumer demand, according to Counterpoint data.

All major Chinese smartphone brands managed to grow their businesses over the period except for Oppo, whose sales declined by nearly 10 per cent. Huawei had the biggest gain for the quarter, growing more than 44 per cent, thanks to the roll-out of its Pura 70 and Nova 12 series.

China has kept tight control over which generative AI products can be made available to the public, requiring that models be registered with a central regulator for approval before services go live. China to date has approved more than 180 GenAI products, all of which are developed by local firms.

Apple Intelligence is meant to give an overhaul of the company's virtual assistant, Siri, giving it better context awareness and allowing it to offer better answers to user queries. Other AI features include helping users draft emails and edit images.

Some companies partnered with local providers to offer AI services on their devices. Samsung Electronics is using Baidu's Ernie LLM for its Galaxy phones.

Apple has so far given no indication of how it plans to offer AI in China. This could potentially leave Apple at a disadvantage as smartphone companies race to integrate AI, according to Lucas Zhong, an analyst at Canalys.

Despite the uncertain timeline, though, Zhong said that Apple's prioritisation of privacy could make its own in-house LLM - which it uses in addition to GPT - among the most likely of foreign AI models to get regulatory approval in the country.

Counterpoint's Lam said pent-up demand from people looking to upgrade their iPhones may still help drive sales of the new handsets in China. Sales could be "slightly higher" in the second half of 2024 compared with a year ago, he added.

Ian Ma, a financial professional in Beijing who currently uses an iPhone 14 Pro Max, said he is interested in the iPhone 16, regardless of its AI capabilities. A number of Chinese iPhone users even mused on social media about buying overseas models to get access to Apple Intelligence, although software features are typically made available according to the country associated with the Apple ID account.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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