As Apple’s sales figures head south in China

The sharp decline in sales of Apple products in China has had a cascading impact. It has jolted companies across the globe that sell components to the American icon. Workers in these companies are on tenterhooks, anticipating that reams of pink slips could soon circulate as Apple’s sales head south.

But the impact goes far beyond the company’s supply chain. Apple shares are bought by the big boys, including some multibillion-dollar hedge funds, spread across major financial centres such as London and New York. A rattling of confidence in one of the most highly rated U.S. companies can undermine business confidence in general, threatening a much bigger global crisis. If Apple and its formidable ecosystem are facing headwinds, how will lesser companies hold their own in a tightening global marketplace? After Apple revealed its revenue estimate for the October-December quarter to be about $84 billion, roughly 6-10% below its initial outlook, the markets shook immediately. On Thursday morning, shares in the California-based company slid by 10% from their closing price on Wednesday.

The drop had a ripple effect on Apple’s suppliers. Catcher Technology, which makes housings for iPhones, closed at around 6% lower than the previous day. Stocks of the Foxconn Technology Group — a critical assembler of iPhone products — were slimmer by 2%.

Japanese companies also felt the heat. Japan Display, the maker of liquid crystal display screens, mostly for Apple, had even earlier downgraded its sales outlook. The

Nikkei Asian Review quoted its president and chief operating officer Yoshiyuki Tsukizaki as saying that the company was “carefully ascertaining the magnitude of swings in the mobile business”. A cluster of Chinese companies too have taken a massive blow. The volume of Chinese machine tools, which include precision devices for making smartphones, apparently dived 90.6% year-on-year in November.

Narrowing of quality gap

Several intricate factors explain Apple’s below par performance in China.

First, the quality gap between Apple products and those manufactured by competitors such as Huawei is arguably narrowing. Besides, Chinese high-end products are much cheaper, driving value-for–money consumers away from their iPhone addiction. For instance, the iPhone XR variant sells for around $1,018. But some of the latest offerings from Huawei go for less than half of that tag.

In general, consumption power in China is on the decline, as the economic slowdown begins to bite. Statistics show that for the first time in November, year-on-year retail sales grew only by 8.1% — the sharpest decline in 15 years. Vehicle buys have been declining for five months in a row, while smartphone sales have been consistently tapering.

Getting consumer loans from banks has also become harder. Further, the trade war between China and the U.S. has also fuelled the drop in Apple sales. In a letter to investors, Apple CEO Tim Cook acknowledged that the ongoing trade war was making a negative impact. “We believe the economic environment in China has been further impacted by rising trade tensions” with the U.S., he observed.

The danger with the trade war is that it breeds nationalist sentiments. On the ground, it can translate into angry calls for an economic boycott, as happened when South Korea deployed the THADD anti-missile system, much against China’s wishes.

China and the U.S. have to avoid a political crisis, which can snowball into a full-scale economic war, endangering supply chains of the entire global economy.

Atul Aneja works for The Hindu and is based in Beijing