For the last two quarters (one and two) it's been clear that China's top smartphone vendors have consistantly beaten Apple by changing the trends and rules of the smartphone sector well ahead of Apple. These are the two strongest iPhone quarters for Apple in most major markets but in China, Oppo, Huawei and Vivo have outsmarted Apple by introducing high quality smartphones with 5.5" displays, excellent specifications at prices that are significantly lower than any iPhone.

While the iPhone continues to have a great enthusiastic base in China, Apple has failed to keep their second tier iPhone in sync with this key market. The iPhone SE is a failure in providing Apple with a modest smartphone to meet the needs of those citizens entering the market. The iPhone SE is far behind what most consumers in that market want and that's a large display. A four inch display is a joke in the Chinese market.

Last month Patently Apple posted a report titled "Xiaomi's new Mi 6 with Killer Features for $360 Puts Pressure on Apple to reinvent their iPhone SE." In reality, any of the Chinese vendors and even rivals Samsung and Nokia are onboard this new trend that makes the iPhone SE uncompetitive at present.

In an article about the iPhone's competitiveness in India, Indiaexpress.com noted that "A made for India product like what the Chinese smartphone makers have been offering is unlikely." Apple's marketing chief Phil Schiller told the Indian news site that "What we try to do and has worked well for Apple is to create products for the entire world that has benefits of that engineering focus and that scale, while also making sure they excel at the needs of the local market." It's the latter part of Schiller's statement that doesn't ring true at the moment.

Apple missed the initial shift to Phablets and Schiller actually mocked the phablet in a keynote in 2012. It was embarrassing to see Schiller thinking that he and Apple had outsmarted Samsung because they understood the power of the thumb. Ouch.

In describing Apple's new iPhone iPhone 5, Phil Schiller stated that "It is really easy to make a new product that's bigger. Everyone does that. The challenge is to make it better and smaller.

Schiller went on to make an obvious point that Samsung forgot: "What is the design center for a Phone? It's this: it's your hand. A phone should feel great in your hand and more importantly it should be easy to use with a magical device we all carry called the horizontally opposed thumb. It does most of the hard work for us. So when you carry your phone it should feel beautiful in your hand."

Apple simply missed the Phablet trend that Samsung set and certainly didn't take it seriously when honestly looking back at Schiller's commentary at the time.

Fast forwarding to yesterday's financial conference's Q&A segment, Apple's CEO was asked a couple of questions about the iPhone's performance in China and Tim Cook skated all around the fact that they're not reacting to the Chinese smartphone vendors accordingly. It's as if they didn't exist.

The excuses about the iPhone's performance in China were painful to hear. Cook blamed it in part on a currency issue. Then it was how Hong Kong was down because tourism was down and then latter, blamed it on iPhone rumors for making people hold back on sales.

Huh? Every year there are rumors about the next iPhone being "the best ever" and Cook never used that excuse before. The clear reality has been Oppo, Vivo, Huawei and now others simply beating Apple in delivering specs at price points that Chinese consumers want. It's certainly not about tourism being down. It's certainly not about rumors.

iPhone sales weren't down all over the world. So are we to believe that the Chinese are the only ones holding back to purchase an iPhone 8? Give me a break.

Apple had an excellent quarter and met their own guidance handily and excelled on many fronts this quarter as detailed by Tim Cook. Even their iPhone sales weren't bad, just a little shy of expectations and it's not because of any other market than China where they're currently being outsmarted.

Yet iPhone sales being down as they were even with the addition of the iPhone RED this quarter, shows us that the problem may be a little deeper than Apple wants to admit. Apple's CEO said yesterday afternoon that sales of the iPhone RED received "a wonderful customer response to this eye-popping new iPhone." So imagine how much lower iPhone sales could have been this quarter without their new iPhone RED. And that's the point. The iPhone RED was timed to provide Apple with a boost for the quarter and to comfortably put them over expectations and it failed to meet that objective.

Is the problem fixable? Ha! – of course and Apple will have an incredible Q4 with the new iPhone 8 that will quickly bury and doubts about their ability to deliver competitive products. But that still doesn't erase the fact that the iPhone SE needs a heart transplant. Apple needs a competitive entry level iPhone in tougher markets. I'm not even sure that an employee making iPhones in China could afford one with a month's salary at $450.

They have to get the iPhone SE's display to a minimum of 5" if it's to be the least competitive with their competition in China. With their Chinese competitors moving to 5.8" and 6.2" later this year at prices cheaper than the iPhone SE, even a mild bump to a 4.7" display will look like a joke in those markets. Unfortunately, 4.7" is probably what's on Apple's road map for their SE model and the competition will continue to drag Apple's overall positioning down.

For Apple fans, they can always console themselves that Apple wins all of the profits in the industry and end it there. But it's an argument that will continue to erode if Wall Street is convinced that iPhones sales are in permanent decline in China three quarters of the year or more.

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