Last week Carl Icahn, the activist investor, took to Twitter to announce that he had taken a “large position” in Apple, saying that the stock is “extremely undervalued”. That single tweet sent the iPhone maker’s shares to a six-month high, adding over $17 billion to its market value.
It was a much-needed boost for Apple, which had just announced its latest earnings. The company said its Chinese revenues fell 14% from a year earlier to $4.6 billion in the quarter ended June 29. The figure, a 43% decline from the previous quarter, marked the first time revenue fell in Greater China (an area Apple classifies as Hong Kong, mainland China and Taiwan), since the company began separately breaking out these numbers from the rest of Asia in late 2012.
“It’s not totally clear why that occurred,” Tim Cook told analysts.
Further bad news: Apple sold just 1.48 million iPads in the quarter, accounting for 28% of China’s tablet market – versus 49% a year earlier. That’s a sizeable drop in share; conversely the South Korean tech giant Samsung doubled its own share of the market to 11%.
Meanwhile, Samsung now has a 17.6% share of the $80 billion Chinese smartphone market, a pie expected to surge to $117 billion by 2017, according to Canalys. That’s almost 13 percentage points ahead of Apple, which has fallen to 7th place with a 4.8% share.
What explains the decline? One reason is that Samsung, which has been operating in China since 1985 (see WiC104), has three times the number of retail stores (official distributors and resellers) as Apple. Samsung has also been more aggressive in generating partnerships with telco operators. “Maintaining a close relationship with the mobile operators is our core policy,” JK Shin, Samsung’s mobile chief, told Sohu IT, an internet portal. “In China, every mobile operator uses different technology so Samsung has to adapt its models to their specific demands. That’s not an easy thing to do. But we always take into consideration the requirements of the operators.”
Shin’s comment is likely directed at its American rival, which has yet to modify its smartphones to accommodate the China market. That explains why iPhones are still not available on China biggest network – that of China Mobile – which operates a homegrown 3G standard TD-SCDMA (although it was reported this week that the telco could soon be offering the next generation iPhone – which is due for release in September. It is thought to run on a compatible Qualcomm chip).
The bigger issue: Samsung has a broader product range compared to Apple. While the Cupertino-based tech firm usually releases one new smartphone model a year priced at the premium end of the market, Samsung introduces multiple models with different specifications and different price points. Research firm IDC also says that Samsung offers a rare case of being the leader in both the high-end and low-end smartphone segments in the country.
Nor is Apple just lagging its Korean rival in China. Five domestic companies – Lenovo, Yulong, ZTE, Huawei and Xiaomi – all outsold the iPhone in the second quarter.
In fact, Xiaomi has made headlines with the release of its latest Hongmi smartphone. When it went on sale in late July, it sold 100,000 units in the first 90 seconds of an online promotion with Tencent’s QQ service. Since the launch last month, Xiaomi says it has received total orders for a hefty 7.45 million phones. It also says it expects to generate more than Rmb26 billion ($4.2 billion) in revenue this year, more than doubling the Rmb12.6 billion it made in 2012. Xiaomi is predicting sales could reach Rmb50 billion next year.
As Apple loses share in China, even its erstwhile imitators are starting to distance themselves. In the past Xiaomi had liked to cast itself as China’s answer to Apple (see WiC176). But now it seems to have changed tack, wanting to be likened to global e-commerce leader Amazon, viewing its handheld devices as akin to a Kindle from which it can sell content.
“If people really want to compare Xiaomi to a foreign company, you can say it looks a bit like Apple. But it’s really more like Amazon with some elements of Google,” Lei Jun, its founder and chief executive, told Reuters recently. “I really don’t like answering the question of whether Xiaomi is China’s Apple.”
Keeping track: we first mentioned smartphone maker Xiaomi in issue 119. Lately it has been generating a lot of buzz with its handsets. Xiaomi’s most recent phone, a low-cost device named Hongmi which is priced at just Rmb799 ($130), sold out its first batch of 100,000 phones in just 90 seconds.
Investors have been taking heed. Last week the Financial Times reported that the company, founded in 2011, has just received fresh investment that values it at $10 billion. That is a significant jump from the $4 billion Xiaomi claimed to be worth in a prior round of funding. And in further news Xiaomi this week hired Hugo Barra, a top executive from Google, to help with its international expansion. (Aug 30, 2013)
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