By Timothy W. Martin 

SEOUL-- Apple Inc.'s stumble in China is an all-too-familiar story for rival Samsung Electronics Co.

Five years ago, the South Korean technology giant sat atop the Chinese market, selling nearly one of every five smartphones there. Today, Samsung is an also-ran, controlling less than 1% of the world's largest smartphone market. Samsung has pared back local staff and last month closed one of its two Chinese smartphone factories.

Though few expect Apple's sales in China to fall so dramatically, some of the reasons triggering Samsung's missteps offer a cautionary tale for foreign smartphone makers.

Samsung, which remains the world's largest smartphone maker, was outmaneuvered by Chinese rivals that sold comparable devices at lower prices. The company's decline was exacerbated by a 2016 global recall of Galaxy Note 7 devices with overheating batteries that tarnished its brand. And Seoul's installation of a U.S. missile-defense system stirred tensions with Beijing, leading to a Chinese consumer backlash against South Korean brands.

Apple's China sales overtook Samsung in 2015, accounting for 14% of the country's shipments, according to Counterpoint Research. It has since slipped back while Chinese rivals, including Huawei Technologies Co., gobbled up more market share by offering similar designs and features for lower prices.

Still, Apple--whose recent sales in the country fell far below expectations, prompting an unprecedented cut this week to its quarterly revenue forecast--stands in better shape. It retains cachet among some wealthier Chinese consumers, has been holding its market share steady, and it makes iPhones in China, employing vast numbers of workers in the country.

A Samsung spokesman declined to comment. Apple didn't immediately respond to a request for comment.

The inability to revive China sales has worsened what's been a rough year at Samsung. Its overall shipments are down by double-digit percentages--worse than the industrywide slump--and its mobile unit's operating profits declined by a third in its most recent quarter.

"Samsung has just lost the plot in China," said Sanjeev Rana, a Seoul-based senior analyst at brokerage CLSA. "I don't think they are in any position to get back either."

Apple's predicament varies from Samsung's in several key ways, smartphone industry experts say. The iPhone uses the Apple-developed iOS operating system, so jumping to rivals is more onerous than from Samsung, which uses Google's Android. That said, the Apple ecosystem exerts less control over Chinese consumers who spend a large chunk of their time inside WeChat, a chat, payments and social-media app from Tencent Holdings Ltd.

Apple can also lean strongly on its branding, though iPhones aren't the status symbol they used to be in China, even among less affluent consumers, said Mark Natkin, managing director at Marbridge Consulting in Beijing.

Shopping at a mall in central Shanghai on Friday, Wang Yu, a 33-year-old who works in foreign trade, was debating buying new devices from Huawei or Samsung. "A lot of people love the country, and want to use Chinese brand phones," said Mr. Wang, who uses a Huawei phone.

But he's most swayed by battery life. A Samsung device he used years ago had battery issues after a year, he said. "I used my Huawei for over two years now, but it never froze up," said Mr. Wang, who will likely stick with the Chinese brand but would buy an iPhone if he had enough money.

Where South Korean companies suffered economic blowback after Seoul defied Beijing with its defense-system changes, Apple has so far escaped a similar repeat of Chinese consumers being stirred by the U.S.-China trade feud. China faces more political risk with the U.S. than South Korea should it attempt to use its influence to flatten iPhone sales.

"If patriotism cooks up, who knows what could happen?" said Tom Kang, an analyst at Counterpoint Research.

Samsung has adjusted its phones strategy amid its struggles in China and a broader sales decline driven by consumers balking at prices soaring past $1,000 and shrugging off new features.

In recent months, Samsung, as part of the shift, has stuffed its best new hardware in middle-tier handsets geared for growing markets such as India. The company has historically reserved such features for its flagship devices like the Galaxy S or Note phones.

Samsung's November release of its Galaxy A9, which costs about $530, was the first handset to have four cameras installed on the device's back. Samsung is also spending $700 million to build the world's largest smartphone factory in India, where the South Korean firm remains one of the largest players.

Apple in recent weeks started to offer discounts in China for trade-ins with used phones, according to its website. For the iPhone XR, Apple is offering a discount of up to nearly a third, which would bring the handset's price down to as low as 4,399 yuan ($640). For the iPhone XS, the discount is up to nearly a quarter of the original price, lowering the price to as little as 6,599 yuan ($960).

Apple's higher-end phone sales have been more resilient in China, according to some analysts, and top-of-the-line products are where Samsung is placing its hopes of winning back Chinese consumers.

Samsung is preparing a major technological upgrade this year for its 10th anniversary flagship phones, including a next-generation 5G phone that features six cameras, The Wall Street Journal reported in November. The company is also preparing a mass production for a foldable-screen phone that will be 7.3 inches when opened.

Zhou Wei in Shanghai and Yoko Kubota in Beijing contributed to this article.

Write to Timothy W. Martin at timothy.martin@wsj.com

(END) Dow Jones Newswires

January 04, 2019 07:35 ET (12:35 GMT)