Apple Among Those Impacted by Slowing Chinese Economy
January 7, 2019
Apple stock slumped 10 percent last Thursday to $142.19, the company’s biggest single-day percentage drop in almost six years, erasing $74.65 billion from its market value. That came after Apple chief executive Tim Cook warned that China’s economic slump is responsible for slowed-down iPhone sales in the past quarter. China’s wobbling consumer confidence is impacting the entire world economy, however, and Apple has problems beyond China. In India, it’s reaping a mere 1 percent of overall smartphone sales.
The Wall Street Journal reports that another reason for slowed sales is that smartphone owners are waiting longer before upgrading their iPhones. Four years ago, U.S. consumers bought new phones every 24.4 months and now, says BayStreet Research, they are likely to hold onto their existing phones for an average 38.78 months.
Apple is also suffering from its “reluctance to change its profitable strategy of selling a limited number of devices at premium prices,” as analysts said that the company doesn’t realize that “its pricing power has diminished in price-sensitive markets” due to less expensive competing products. In the last four years, Apple has raised the iPhone sales price 12 percent to $749.63 in 2018.
IHS Markit mobile analyst Wayne Lam said that when Apple said it would stop reporting iPhone unit sales, it “signaled sales volume wasn’t as important as pricing … [but] price elasticity snapped” in Q4. Cook acknowledged that, “the forecast revision would prompt review.”
The iPhone XR is a chief example of the problem. When Apple released the “more modestly priced” iPhone last fall, it anticipated strong demand in China, but is now “grappling with excess XR inventory.” The XR’s starting price is 6,499 yuan ($945) vs. Huawei’s Mate 20, starting at 3,999 yuan. The Mate also features a triple camera system versus XR’s single camera.
The New York Times reports that, in China, “worried about the country’s slowing growth, a trade war with the United States and rising amounts of personal debt,” consumers aren’t spending like they used to, especially on pricier U.S. products like Apple iPhones.
“A significant pullback could have a big impact on a world looking for engines of growth, on companies that counted on China’s continuing expansion and on global investors who have long viewed Chinese consumers as a steady source of profits,” NYT notes. That’s behind the 2.5 percent dip in the S&P 500 as well as Apple’s 10 percent slump. Greater China (which includes Hong Kong and Taiwan as well as mainland China) is Apple’s third largest market, accounting for $52 billion in annual sales in the last fiscal year.
Other major U.S. companies, such as General Motors and Procter & Gamble, also depend on a robust Chinese market. The lack of consumer confidence may also “undermine China’s efforts to redirect its economy and spur growth.”
“China is at a turning point in its economy,” said Orient Capital Research founder Andrew Collier. “They’ve basically been on a debt-fueled binge for a decade. It’s difficult to turn the ship from industry to consumer at a time of rough waters.”
5 Reasons You Wouldn’t Want to Be in Tim Cook’s Shoes Right Now, The New York Times, 1/4/19
In Price and Value, Chinese Phone Makers Outpace Apple in Much of the World, The New York Times, 1/4/19
The Phone That’s Failing Apple: iPhone XR, The Wall Street Journal, 1/6/19
No Comments Yet
You can be the first to comment!
Sorry, comments for this entry are closed at this time.