27 April, 2016

Apple's China Woes A Harbinger Of Things To Come

From: ForbesBy Kenneth Rapoza

Apple is still one of the top three smart phones in China, but the recent cool down in sales has as much to do with local competition from Huawei and Xiaomi as it does from the economic slowdown. Companies like Apple are going to have to learn to live with a maturing market in some cases, and sophisticated, high quality competition from new Chinese contenders.

China is moving up the value chain. Companies like Apple may have American cache on their side, but that’s all they have. China is as loaded with smartphones as they are automotive dealerships. They’re awash in the stuff. What Apple’s disappointing numbers also show is just has fast Chinese firms are moving up the value chain. In other words, look out Cisco, the privately held Huawei is coming for you next.

While corporate America is busy contracting patent lawyers to go after Chinese copy-cats like Huawei and Cisco 10 years ago, Chinese firms are in the process of eating their lunch.

This growth is perhaps the scariest thing emanating out of China for the U.S. Imagine what happens when China taps its deep sea oil reserves? As it is, China is the fourth largest producer of oil after Saudi Arabia, Russia and the U.S., making it bigger than Canada, Venezuela and Brazil, according to the International Energy Agency.

China is moving up the food chain. Literally. In the process, it’s going to take over businesses. ChemChina forked over a cool $43 billion to usurp Monsantoin its acquisition of Swiss multinational agribusiness giant Syngenta.  Zoomlion has bid for U.S. crane maker Terex, a potential Trojan horse against the Caterpillar brand.

The Organization for Economic Cooperation and Development says China’s participation in the global value chain increased to 59% in 2011 from 26% in 1995, higher than the 45% in the U.S.

China has been a key player in the shift of global production from developed countries toward developing ones. In value added terms, China has been eroding the U.S., European and Japanese corporate brand market share for the past five years. That is especially true in telecommunications equipment, office machinery and computers.

China laptop maker Lenovo replaced Hewlett Packard as the leading PC vendor in 2012. As of the fourth quarter 2015, Lenovo is still number one with a 21.4% marketshare worldwide. HP has a 20% share and third place Dell has 14.1%, according to the IDC Worldwide Quarterly PC Tracker.

Apple isn’t leaving China. Nor are the Chinese falling out of love with the brand. While competition is surely a long term issue for Apple, the strong dollar can be blamed for its earnings miss.

Sales in China and Hong Kong fell 26% due in part to the Hong Kong dollar, which pegged to the greenback.

“China is particularly worrisome for Apple because it has risen quite quickly to become Apple’s second-most important region,” Brian Blau, a San Francisco-based analyst at Gartner told Bloomberg. “That makes us wonder what the issue is, whether it’s a temporary issue or whether it’s going to be something longer-term.”

The dollar issue may be temporary. But Huawei and Xiaomi are here to stay.

Source from:http://www.forbes.com/sites/kenrapoza/2016/04/27/apples-china-woes-a-harbinger-of-things-to-come/#ba279472b9b1

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