Apple's China problems are piling up

• Apple's China problems are about to get bigger.
• Domestic chipmakers are drawing up plans to supply smartphone makers like Huawei with advanced chips.

Apple is about to face another big problem in China.

Huawei, one of its largest competitors in the region, is about to get a huge technological boost that will help its handsets compete with iPhones.

Chinese smartphone makers have had a hard time getting their hands on high-end semiconductors — a crucial smartphone component — in recent years.

This has been due to tough export restrictions in the US that have prevented Western chipmakers from shipping their best tech to China.

Naturally, this has been a boon to Apple, which became the region's best-selling smartphone brand for the first time last year.

But Apple's technological edge might not last for long.

That's thanks to plans being drawn up by Chinese chipmakers, including state-backed SMIC, to create chip production lines in Shanghai that supply state-of-the-art processors to domestic smartphone makers like Huawei from their own backyard, according to the Financial Times, which cited two people familiar with the matter.

The development, which will provide domestic brands with locally-made chips, could pose the biggest threat to the iPhones in China yet.

Apple's Chinese competition intensifies

Apple has been facing a tougher time of it in China in recent months. Globally, the iPhone maker reported a 2% uptick in revenue in the final quarter of 2023, with sales rising to $119.6 billion.

But in the midst of those sales was a substantial slowdown in China. Apple reported a 13% slump in revenue in the Greater China region.

This period followed immediately after the release of the iPhone 15, the latest generation smartphone from Cupertino. But a slowing in sales is a sign that winning over Chinese consumers is getting tougher.

In part, this is because consumer appetite in China has been knocked hard since the COVID-19 pandemic. In fact, demand has been so weak that China's consumer price index fell for the third month in a row in December.

But Apple's sales decline also reflects a resurgent interest in homegrown gadgets.

Huawei's August release of the Mate 60 Pro demonstrated just how significant that interest is, as Chinese consumers bought up a phone with a tiny 7-nanometer chip made in China that impressed consumers with its speed.

Though Apple ultimately ended 2023 as the top-selling smartphone in China last year, it did face a decline in sales just as Huawei recorded a 36% increase in the final quarter of the year.

The trends could become more apparent if China's chip plans work out.

The FT reported that SMIC could be looking to produce 5-nanometer chips, which would be even more advanced than the 7-nanometer ones in Huawei Mate 60 Pro. Other local rivals like Honor and OPPO could want in, too, as local chips make strides in performance.

Apple CEO Tim Cook has, of course, been well aware of the growing threat. Last year, the Apple CEO made two visits to the country, including a surprise, unannounced visit in October amid struggling sales.

He may need to make a few more soon.