How Apple Got Into Trouble in China

For one thing, it may have underestimated what local rivals were up to
By Newser Editors,  Newser Staff
Posted Jan 3, 2019 12:16 PM CST
How Apple Got Into Trouble in China
A woman browses her iPhone in Beijing.   (AP Photo/Andy Wong)

Apple is having a brutal day in the stock market, with shares down 9% in the first hours of trading. Unless the stock rallies, that would mark the biggest single-session drop for the company since a 12% decline in 2013, reports MarketWatch. It all stems from Apple's surprisingly grim earnings forecast, with the company pinning much of the blame on China's slowing economy. Details and developments:

  • Underestimated? While CEO Tim Cook might see China's economy as the main culprit, the Wall Street Journal reports that analysts suspect Apple underestimated Chinese phone-makers. Apple now ranks fifth among phone sellers in the nation, behind the likes of Huawei and BBK Electronics. “The others are a little closer to the pulse of what matters to Chinese consumers,” says one analyst.
  • Tighter wallets: Cook isn't wrong about the current direction of the Chinese economy, however, with metrics such as factory activity and auto sales on the wane. That has translated into decreasing consumer confidence, which makes the prospect of shelling out more than $1,000 for a phone dicey. "People are worried about losing jobs," one ad designer tells the AP.

  • Price, patriotism: Reuters notes that iPhone became a status symbol after being introduced in China in 2009, but that's no longer the case. Citing comments on the microblog site Weibo, Reuters sees rising prices as the main factor in declining sales. “Only fools buy expensive iPhones. Sane people buy top quality, cheap Huawei,” said one popular comment on Weibo. “Support Chinese brands!”
  • Cook's letter: Read Cook's letter to investors here. In it, he says the company will make it easier for Chinese consumers to trade in their phones and to be able to purchase new ones on payment plans.
  • What US analysts say: CNBC rounds up reaction to the Apple earnings forecast from some of the nation's top analysts, and it's not pretty. "Biggest miss in years," said Jefferies Group in an investors' note. "Apple's business in China appears to be rapidly deteriorating." The company downgraded the stock from "buy" to "neutral," and it wasn't the only one to make such a move.
  • Not just Apple: All of this comes amid the backdrop of major friction between the US and Beijing, and the chair of the White House Council of Economic Advisers says more companies will be in a similar boat until the two nations work out a trade deal. “It’s not going to be just Apple,” Kevin Hassett told CNN, per Bloomberg. “There are a heck of a lot of US companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China.”
(More Apple stories.)

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