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Apple's China Problem

count

Well-known member
Apple reported better than expected iPhone sales, but units were still down 15%. This drop was driven primarily by weakness in China, where sales were down 33%. But the Chinese smartphone market isn’t shrinking, instead cheaper competitors like OPPO and Vivo have started offering competitive products at half the price of an iPhone - a value proposition that is catching on with consumers.


More concerning to Apple, these Chinese OEMs are beginning to reach beyond their own borders and into Western markets in search of growth. If the idea of a half priced premium smartphone catches on with Western consumers, Apple’s China problem could spill over globally to become an existential crisis for the company. It feels like deja vu from the PC era, where Apple revolutionized the home computer only to lose out to the Windows ecosystem. This time it’s Android playing spoiler.


Apple’s loss could be Qualcomm’s gain. If you look at the AP powering the higher end Chinese smartphones, you will often find a Snapdragon. As Chinese OEMs invade western markets, Qualcomm could see a reinvigoration in sales.
 

Daniel Nenni

Admin
Staff member
From SA:

Apple posts better-than-expected Q3 results, +6.95% in extended trading:

  • Apple (AAPL) exceeded this quarter's expectations while posting sales down 14.5% Y/Y.
  • 40.399M iPhone units shipped (vs. 40.02M expected and 51.2M Q/Q).
  • 9.95M iPad units shipped (vs 9.1M expected and 10.9M Q/Q).
  • 4.252M Mac units shipped.
  • Gross margin 38% vs. 39.7% Y/Y.
  • International sales contributed to 63% of Q3 revenue.
  • Services business +19% Y/Y.
  • App Store revenue highest ever.
  • $13B returned via share repurchases and dividends ($177B of $250B already committed to program).
  • Q4 guidance of $45.5B-$47.5B revenue, 37.5%-38% gross margin and $6.05B-$6.15B of operating expenses.
  • $0.57 per share dividend declared.
From Apple CEO Tim Cook: "We are pleased to report third quarter results that reflect stronger customer demand and business performance than we anticipated at the start of the quarter. We had a very successful launch of iPhone SE and we’re thrilled by customers’ and developers’ response to software and services we previewed at WWDC in June."

And I just got an update on mobile and wearables:

More Details on the Smartphone and Wearables Market

China is being dominated by Haweui and Xaoimi. Haweui does their own silicon through their Hisilicon group and Xaoimi is a big Qualcom and MediaTek customer today but maybe not tomorrow.
 
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count

Well-known member
I don't see the trend of every OEM designing their own silicon as being long term sustainable, especially as the cost of developing a new SoC increases exponentially from one node to the next. That design cost is amortized across all units sold, and no single OEM can sell as many units as a company that can sell to all of them.
 

benb

Active member
Good for Chinese consumers. I would like to pay $199 for a Snapdragon 820 phone too...

I look at the phone market as a graveyard. Here lies Nokia; here Motorola. Apple is very dependent on phones and eventually, they too will fail. Apple has some other businesses too which can break the fall. So, the China problem isn't a problem (for consumers...) but hoping for Apple to survive in a $199 flagship market for long, is wishful thinking.
 
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Jozo035

Active member
Yess, $200 flagship phones sound great from customer perspective, but from perspective of manufacturers, how is it possible to develop new process node, CPU architecture, software or design of device and then sell final product at near manufacturing price?

I really want to see, where these chinese brands should be without Nokia, Samsung or Apple, and what they will do after they will be forced to make some significant investment into R&D.
 

count

Well-known member
Yess, $200 flagship phones sound great from customer perspective, but from perspective of manufacturers, how is it possible to develop new process node, CPU architecture, software or design of device and then sell final product at near manufacturing price?

I really want to see, where these chinese brands should be without Nokia, Samsung or Apple, and what they will do after they will be forced to make some significant investment into R&D.

Modular architecture and massive volume. There has been talk on this forum about how the integrated semiconductor manufacturer business model is disadvantaged and the same goes for the integrated smartphone manufacturer. Simply put, a modular architecture means the best of breed components end up selected in the majority of applications allowing the manufacturers of those components to win the massive market share and volumes required to allow them to continue innovating.
 

Jozo035

Active member
Of course, i realize it, but $200 for a flagship is extreme. Profit per unit is too low and there is not enough people on this planet so you can't sell enough quantity.

And here real flagships comes.

For example look at manufacturing costs of Galaxy S7 (>$255). Plus development or even managers (management wont work for free). Selling it for $200 sounds unrealistic.

So Samsung did not price it higher because they are greedy. Price is higher because count of costs are higher too.
 
S

Staf_Verhaegen

Guest
I really want to see, where these chinese brands should be without Nokia, Samsung or Apple, and what they will do after they will be forced to make some significant investment into R&D.

What features does the iPhone7 have over the 6 or the 5, or the Samsung S7 over S6/S5 that needs these huge investments in R&D they need to earn back? To me the smart phone market has matured and has been commoditised. Companies who can't adapt will have difficult times. Apple in the past went to new markets before older products commoditised but I don't see any new markets coming. There are rumors of an Apple self driving car but it seems to be a long way from coming and you have Tesla which is already being the Apple of the electric (self-driving) cars.
 
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