Apple Shocker: It’s an “Also-Ran” in China

iPhones trailing Samsung, Lenovo in smartphone market share

   
Apple Shocker: It’s an “Also-Ran” in China

Apple Inc. (NASDAQ:AAPL) might be one of the most powerful brands in America, but it’s having a rough go in China.

According to research firm IDC, Apple’s share of the Chinese smartphone market (as measured by shipments, not users, mind you) was cut in half to just 10% in Q2. Meanwhile, Q3 Apple sales in China suffered a sharp quarter-on-quarter slowdown.

Let’s be clear: It’s not the end of the world for Apple. It sold $5.7 billion worth of gadgets thanks to providers including China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA). That’s a year-over-year increase of almost 50%.

But there could be trouble brewing in China. Tim Cook admitted as much in the latest earnings call, admitting that performance in the region was weaker than expected on the iPhone front. Considering China is 16% of the company’s top line, that’s no small issue.

Most damning of all, check out this excerpt from Zhao Tianqi and Kathrin Hille over at the Financial Times blog Beyond BRICs. I’ve cut out some of the stuff I don’t think is as interesting, and the bold is my emphasis:

“IHS isuppli, another research firm, even sees Apple as an ‘also-ran’ in China, trailing, with a market share of just 7.5 per cent, behind Coolpad, Huawei, Nokia (NYSE:NOK) and ZTE, as well as Samsung and Lenovo.

Apple is clearly no longer Chinese consumers’ first choice — a problem that had already been flagged when the company disappointed investors with its results for the June quarter last month.

… particularly hard for the US company is that the Chinese smartphone market is more important than ever. The IDC figures show that smartphone shipments overtook those of feature phones for the first time in the June quarter, accounting for 51 per cent of total handset shipments of 87m units in the world’s most populous country and largest mobile market by subscribers.

One reason Apple is falling behind is Chinese telecoms operators’ reluctance to subsidise the iPhone enough to make it competitive. While this affects all makers, Apple is especially exposed because its smartphone is the most expensive.

But there are other disadvantages. With a screen expected to measure 4 inches, the iPhone 5 is no longer cutting edge. ‘That would still be smaller than many of its Chinese competitors, which have 4.3-inch or 4.7-inch screens,’ says Wang.”

In short, Apple isn’t a popular favorite because it doesn’t stand out and is more expensive. This is not just bad in the short term, but a huge risk for the long term because of China’s size and the long-awaited move from “dumb” cellular phones to smartphones like the iPhone.

For the record, I personally have a long position in the AAPL and I am very bullish on Apple in the long term — but I’m not naïve. I regularly explore the downsides to this stock to make sure I’m not another foolish fanboy (check out my bearish case on Apple stock from this week for the risks I see).

But this kind of news makes me wonder if it might be time to take some profits off the table after the iPhone 5 launch. The competition is getting fierce, and nobody stays on top in tech forever.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple.


Article printed from InvestorPlace Media, http://investorplace.com/2012/08/apple-shocker-it-is-an-also-ran-in-china/.

©2014 InvestorPlace Media, LLC

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