Why Apple May Not Win In China

Apple in China

This past week Apple (AAPL) posted the highest quarterly earnings in American history. The reward for this incredible feat was a decline in share prices that chopped approximately $30 Billion off Apple’s market cap (that’s like wiping out the value of a company the size of FedEx overnight). During the earnings call, Apple CEO Tim Cook said, “Beyond the short-term volatility, we remain very confident about the long-term potential about the China market and the large opportunities ahead of us, and we are maintaining our investment plans.” That should have calmed long-term investors’ nerves, but clearly some were not impressed.

Cook said that revenue in the greater China region grew 14 percent over the prior year, 47 percent sequentially, and 17 percent year-over-year in constant currency, and added that the results “were fueled by our highest ever quarterly iPhone sales and record App Store performance.” Importantly, Cook admonished that Apple remains “very bullish on China” and doesn’t “subscribe to the doom and gloom kind of predictions.”

Taken at face value, it looked like Apple was doing great (best quarter in American history), had realistic expectations about potential ups and downs that are tied to greater economic conditions, and with ~$200 Billion of Cash-in-Bank was well positioned to weather this (or any other) kind of economic storm. But there’s another side to the story.

China Is Not America

If you don’t live in China, it’s hard to understand the complex relationship the Chinese people have with Western brands. I wrote a little bit about this back in May 2008 in an article entitled, “Chinamerica – An East/West Mashup.” So important are authentic Western brands that it is often said, “People who live in Shenzhen want to shop for full-price luxury goods in Hong Kong to ensure their authenticity – while people who live in Hong Kong want to travel to Shenzhen to get high-quality low-priced knock-offs.” This brand-crazy sentiment on the Mainland is more than partially responsible for Apple’s success. In China, an iPhone is a personal manifesto. It defines its owner in ways that far exceed our Western notion of status symbols.

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Shelly Palmer is Fox 5 New York's On-air Tech Expert (WNYW-TV) and the host of Fox Television's monthly show Shelly Palmer Digital Living. He also hosts United Stations Radio ...

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Yi Zhou 2 years ago Member's comment

This may have been true a few years ago. However, Apple products are no longer luxury goods for Chinese people. They don't need to buy it for "show" but not for use. That's a waste of money, which Chinese people never want to do. More and more young people in China love and use Apple products. It's a huge market for Apple Inc.

Chinese electronic products also have their own advantage. Most of them apply Google's Android system. As the author says, there are less restrictions than Apple. Users can download their mobile application free and from the Android market or other sources. If Apple wants to dominate the electronic market in China, it has to develop more attractive applications and a more flexible system.

Craig Newman 2 years ago Member's comment

Thanks for your insider's viewpoint. You make a lot of sense.

Alexis Renault 2 years ago Member's comment

I found it mind boggling that $AMZN was getting punished for having it's best quarter in history. But this article shed some light on the issue for me, thanks.

Steven Norman 2 years ago Member's comment

There is nothing really new or insightful about Chinese consumers in this article, their behavior has always been like this and Apple has thrived. I think I'll take more notice of the real numbers, Apple's official sales etc and not anecdotes from 'friends who have passed through China'.