Apple or China – where does the problem lie?
By now, Apple’s difficulties in China are well-known. And many investors are extrapolating a question from them: does Apple’s failure to shift iPhones finally prove what we’ve been worrying about months – is Chinese demand for luxury about to dry up? Or, phrased another way: Is Apple’s recent sales catastrophe the result of a problem in China, or a problem at Apple?
Here’s what Apple’s problem looks like visually…
To be clear, Dominion hasn’t included Apple in any of its Global Trends range of Funds for a significant period, and we have been fairly forthright in regards to where we see the problem. In a recent article on this newsfeed, Dominion’s Global Trends Ecommerce Fund Manager Fred Baccanello wrote:
“Alibaba’s Singles day saw retail transactions grow +23% to $30.8 billion, illustrating that all is not as bad as some headlines would suggest in China. The iPhone shortfall may thus be more indicative of Apple’s specific issues […] Apple’s profit warning is more idiosyncratic and company specific than both Apple’s letter and many headlines suggest.” (If you want to check out Fred’s view in full, you can read his whole piece here).
Days after Fred published our view on Apple’s earnings, Bank of America Merrill Lynch (BAML) has released information that broadly agrees with it. In a note, BAML economists Ethan Harris and Aditya Bhave wrote: “According to a survey conducted by our colleagues in equity research, consumers in China and India are showing less interest in upgrading to an iPhone and more interest in upgrading to Xiaomi and Samsung.”
In other words, Chinese consumers are definitely still upgrading their phones. They’re just not doing it with Apple anymore.
Dominion does not hold Apple in any of its Global Trends range of Funds.
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