Apple Looks to China Ahead of iPhone 6S Launch

Everything is fine. That was the gist of an email sent in August by Apple chief executive Tim Cook to business news site CNBC, concerning the company's performance amid the volatility of the Chinese stock markets. As Apple prepares to launch its new iPhone 6S and iPhone 6S Plus at a blockbuster event on Wednesday, Cook is continuing to look to China as a land of opportunity, but also challenge.

Apple is doing well in China. Very well, in fact. China became the world's largest smartphone market in 2011 and has an estimated 520 million smartphone users, the highest number in the world. China surpassed the U.S. as Apple's biggest market for the iPhone during the first quarter of 2015. Despite slipping to third in terms of mobile market share, behind domestic manufacturers Xiaomi and Huawei, in the second quarter of 2015, Apple is expected to bounce back with increased sales as eager customers snap up its new products in the weeks and months ahead.

Apple still has a lot riding on China. The volatility which prompted Cook's written intervention wiped 13 percent off Apple's shares, bringing them down to a year-low of $92 on Monday August 24 before a significant rebound in the following days, though some analysts fear that the worst could be yet to come.

In his intervention—an unprecedented update from Apple, coming midway through a financial quarter—Cook sought to reassure investors, writing that Apple had seen "strong growth" in China during July and August. He also noted that the region represents "an unprecedented opportunity over the long term," citing low levels of 4G penetration and the continuing growth of the Chinese middle class. During an October visit to China last year, Cook announced plans for Apple to almost triple the number of stores it has in the country from 15 to 40 by the mid-2016, adding that it was "just a matter of time" before Beijing became the biggest contributor to Apple's revenues.

That said, Apple's Eastern expansion is not without challenges. As seen in the Q2 results, the U.S. brand faces some stiff competition from Xiaomi and Huawei. Xiaomi has been accused of copying the iPhone design, with Apple's design chief Jonathan Ive reportedly saying the company's tactics were equivalent to "theft." However, Xiaomi's high-spec, low-price pitch has resonated with Chinese consumers—its Mi Note model sold out in three minutes following its January launch. With regards to Huawei, the Chinese vendor recorded a year-on-year growth rate of 46 percent in the second quarter of this year, making it the country's fastest-growing smartphone manufacturer according to a recent Gartner survey. Interestingly, Huawei pipped Apple to post with regard to its Force Touch technology, which is being widely mooted as the defining feature of Apple's new iPhones, by deploying a similar feature in its Mate S phone released last week.

Additionally, Gartner's Q2 report on worldwide smartphone sales predicted that the Chinese market may be reaching a tipping point. Beijing represented 30 percent of total global smartphone sales in Q2 2015, but the report pointed out that sales fell in China by 4 percent, the first year-on-year decline. Gartner's research director Anshul Gupta warned that "China has reached saturation," with few first-time buyers entering the market and high-end vendors such as Apple having to work increasingly hard to convince existing users to upgrade.

Apple's future in China is bright, Cook concluded in his email to CNBC. Tomorrow's launch, which is set to include a brand new version of the iPad, and Apple TV updates as well as the release of the new iPhones, has been billed as the biggest launch in the company's history. As he unveils Apple's shiny new toys, Cook will undoubtedly be keeping one eye looking East in the hope that his prediction proves true.