Wednesday, 20 March, 2019

Apple's stark warning may be ominous news for China

TimCook1 Nobody in China wants Apple's eye-wateringly priced iPhones, sighs CEO Tim Cook
Kelvin Reese | 05 January, 2019, 03:55

CEO Tim Cook blamed the slump on a slowing economy in China, where Apple has also faced competition from Huawei and Xiaomi.

But Apple's new $1,000 iPhones are a hard sell to Chinese consumers anxious about the economic future, as trade tension continues between China and the United States.

North American markets were whipped lower Thursday after Apple's warning about weaker holiday sales particularly in China signalled that trade tariffs could take more a bigger bite out of corporate earnings.

The company now expects revenue of around $84 billion (£67bn) for the October to December period, well below previous predictions of up to $91bn (£72bn). Even Apple's iPhone XR, which was supposed to be a lower-cost alternative to the high-end iPhones, costs about 1,000 yuan more than a competing device. In late December, the promotional program for the new models went live in China, adding one major perk: users in China cannot only trade in their old iPhones, but also Android phones made by Apple's major competitors in China, including Huawei, OPPO and Xiaomi. "For the moment, the market won't be able to differentiate between what's China-specific and what's Apple-related in China".

The U.S. -China trade dispute threatens to snarl multinational companies' supply lines and reduce demand for their products.

Apple's dour revenue warning was not entirely a surprise.

China is looking to push ahead with its rollout of a faster 5G network, with a pre-commercial phase this year and a commercial network in 2020.

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Apple's share of China's smartphone market has dwindled over the past three years and is expected to fall further as demand for expensive iPhones continues to erode.

Apple shares traded as low as 142.81 dollars apiece, or almost 10 percent lower on Thursday, registering a 52-week low. Experts say many Chinese consumers are likely to reject Apple's iPhone price increases and instead buy less costly models from competitors.

"This year has the potential to be a tough year for western brands", said Benjamin Cavender, a Shanghai-based analyst at consultant China Market Research Group. But, he noted that Apple "appears to have lost material share in China in Q4 despite its new product launch, and that Apple has struggled in China before, underscoring the fickleness and lower lock-in of Chinese consumers". The truth remains that the iPhone has always been Apple's core business and if Apple can't sell enough of them, the whole company struggles.

On Thursday a local industry body, the China Anti-Infringement and Anti-Counterfeit Innovation Strategic Alliance, called on Apple to heed the court order and not 'trample the Chinese law by leveraging its super economic power and clout'.

Apple and the White House didn't immediately respond to requests for comment. Mid-level officials from the Trump administration are scheduled to travel to Beijing for talks early next week.

"It's not going to be just Apple", CEA chairman Kevin Hassett said in an interview on CNN.

The yield on the 10-year Treasury fell to 2.64 percent.

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