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Category: Electronics

Retail News Asia is committed to providing both local and global retailers with the latest Electronics news throughout the Asian market. This on a daily base.

  • Apple sales stumble shrouded by record profit

    Apple sales stumble shrouded by record profit

    While it seems harsh to be negative about a company that has just taken $75.9 billion in revenue, the focal point of today’s quarterly update from Apple is inevitably the year-over-year growth rate. Here the rather lackluster 2 per cent uplift represents something of a misstep for a company that has built its reputation on impressive performances.

    It is certainly the case that a strong dollar diminished Apple sales growth, but even the increase of 8 per cent on a constant currency basis is fairly anemic when set against previous quarters. Of particular concern is the 4 per cent decline in revenue in the Americas, which remains Apple’s most important region in terms of sales.

    In our view, the fact that the weakest performance came from the most mature region with the highest levels of product penetration is no coincidence. The blunt truth is that Apple failed to persuade consumers to buy into its holiday product lineup in the way it has done in previous years.

    While there is no doubting Apple’s technical and design prowess, some consumers simply overlooked its new iPhone, seeing too few benefits over and above their existing models to convince them to upgrade.

    The new iPad, which even by virtue of its name was aimed at a more professional audience, also received something of a lukewarm reception among consumers.

    This translated into soft sales growth. Our own data show that this holiday was one of the weakest for personal electronics in recent history. Indeed, a number of players like Best Buy saw their own results dragged down by lower than normal demand for things like tablets – something that underlines the fact that when Apple sneezes, other retailers catch a cold.

    None of this is to diminish the impressive numbers, which continue to indicate that Apple is an immensely popular brand with desirable products, but it perhaps serves as an early warning that the company needs to work much harder at creating a step change in the new devices it launches. It must also ensure that these are squarely aimed at satisfying real consumer demand rather than internal egos: while Apple engineers may be excited about shaving a millimeter off the depth of a phone, such technicalities are far less appealing to everyday users.

    Fortunately for Apple, the lack of growth in the Americas was offset by continued strong growth in China, where product penetration is far lower and there is a much larger base of new consumers to capture. The same is also true of parts of Europe, although here the advancement in Apple sales was somewhat depressed by the strength of the dollar against local currencies.

    Nevertheless, the fact remains that 2016 is year when Apple needs to come up with revolutionary rather than evolutionary product. If it fails to do so, its growth is likely to be diminished still further.

  • Oppo, Vivo snap at Apple’s heels in China mobile market

    Oppo, Vivo snap at Apple’s heels in China mobile market

    Beyond China few may have heard of Oppo or Vivo, but these local handset vendors are rising up the rankings in the world’s largest smartphone market, using local marketing savvy and strong retail networks in lower-tier cities.

    Industry experts say these cities – there are more than 600 of them and some are bigger than many European capitals – are the next smartphone battlefield as China’s major cities are saturated.

    International brands such as Apple and Samsung Electronics have mostly not yet reached this part of the market – which accounts for more than 56 percent of China’s overall consumption, according to Beijing All China Marketing Research.

    In an economy growing at its slowest pace in a quarter of a century, buyers in these smaller cities – with populations of up to 3 million – tend towards cheaper phones, which is good news for Guangzhou-based Oppo and Vivo, as well as Meizu Technology, an affiliate of Alibaba Group Holding Ltd .

    “Oppo and Vivo have already overtaken Samsung and ZTE Corp in China, and are working to chase down the big three of Huawei, Xiaomi and Apple in 2016,” said Strategy Analytics analyst Neil Mawston.


    Oppo sold 10.8 million smartphones, giving it a 9 percent market share and a top-5 ranking, in the fourth quarter of last year, according to Strategy Analytics – even as the overall China market slipped 4 percent (Oppo) To be sure, these lower-priced newcomers lack the firepower of the premium brands, and operate on razor-thin margins or at losses. They need mass volume sales to keep going, the industry experts said.

    Oppo sold 10.8 million smartphones, giving it a 9 percent market share and a top-5 ranking, in the fourth quarter of last year, according to Strategy Analytics – even as the overall China market slipped 4 percent.

    Oppo’s R7 smartphone, priced at 1,999 yuan ($304), touts itself as a “selfie expert”, with a bigger screen than the iPhone 6S and competitive camera resolution.

    Vivo ranked fourth with 10 percent market share, below Apple’s 13 percent.

    The growth among these younger vendors comes as Apple, Xiaomi and others struggle to maintain momentum in a market swamped with smartphones and fading economic growth.

    Analysts say the newcomers run eye-catching marketing gimmicks, including sponsorship with local TV shows, and have extensive retail networks in lower-tier cities.

    “There’s only so much the international firms can do when it comes to localized marketing in China,” said Nicole Peng at Canalys. “For foreign companies like Samsung, their marketing strategies don’t really cater to the Chinese consumer.”

    Sixth-ranked Samsung declined to comment.

    Apple last week forecast a first revenue drop in 13 years and posted the slowest-ever increase in iPhone shipments as the Chinese market showed signs of weakening.

    A mobile phone made by Chinese telecom equipment maker Huawei is displayed in a store in Beijing. (AFP)

    CHALLENGES AHEAD

    China has nine of the world’s top-12 smartphone brands, with nearly a quarter of the market share, according to CounterPoint Research, but turning that into volume sales beyond China will be a challenge.

    Overseas, Chinese brands lack strong distribution networks and can run into intellectual property issues. Oppo is already in several Asian and Middle East markets, while Vivo is in Malaysia and India.

    And at home, Chinese device buyers are notoriously fickle, switching between brands in a cut-throat market. Regular price wars have seen ZTE and Lenovo Group frequently swap places in the sales rankings.

    “The lines between ‘high-end’ and ‘low-end’ devices is blurring, which leaves price as the sole differentiator for most mass market buyers,” said Sameer Singh, an analyst who blogs at Tech-Thoughts.net.

    “Brand image tends to be a lagging indicator of customer experience, i.e. as the latter improves, so does word-of-mouth and consequently brand image. I think that’s what we’re seeing with Chinese brands today.”

  • Panasonic cuts full-year operating profit outlook on China slowdown

    Panasonic cuts full-year operating profit outlook on China slowdown

    Japanese electronics firm Panasonic Corp cut its full-year outlook for operating profit on Wednesday due to concerns over weaker home appliances sales in China amid an economic slowdown.

    Panasonic forecast group operating profit of 410 billion yen ($3.42 billion) for the year through March, down from a previous estimate of 430 billion yen.

    Panasonic said October-December operating profit increased to 119.8 billion yen from 113.3 billion yen a year earlier. That missed an average forecast of 122.9 billion yen in a Thomson Reuters survey of six analysts.

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  • Mobile World crossing borders

    Mobile World crossing borders

    As well as electronics and mobile phones, its usual products, Vietnamese chain Mobile World is planning to distribute groceries in its first stores in Cambodia, Laos and Myanmar.

    CEO Tran Kinh Doanh says the stores will open early next year.

    Meanwhile, he has revealed two goals – to become one of the biggest eCommerce firms in Vietnam, and to bring in revenue of about VND34,000 billion (US$1.51 billion) this year. This would provide an after-tax profit of VND1400 billion – up VND400 billion on the past financial year.

    With 70 stores and a distribution network covering 42 provinces and cities, Mobile World last year earned VND25,000 billion, giving an after-tax profit of VND1000 billion. Both revenue and profit grew by 60 to 70 per cent. Online sales contributed less than 10 per cent of total revenue.

    Mobile World opened more than 200 cellphone stores last year, taking its total to 550, and this year it plans to expand its network to all 63 provinces and cities in Vietnam to become the second-largest electronic and mobile phone retail chain in the nation.

    It decision to join the food market with 13 stores was announced late last year. The corporation has 17,000 employees, expecting to grow this to about 26,000 people.

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  • Courts opens second Indonesia megastore

    Courts opens second Indonesia megastore

    Courts Indonesia has opened its second megastore – inside BSD City, about 42 km west of Jakarta.

    The new store is part of a strategy by Singapore-listed Courts Asia to expand its footprint beyond its core Singapore and Malaysia markets.

    Billed as the largest Courts Megastore in Asia, the new outlet covers 22,694 sqm of land and boasts a shopping area of about 20,400 sqm.

    “Indonesia is currently the driver of Courts’ growth,” said Roy Santoso, Courts Retail Indonesia CEO in a statement.

    “Since we first entered Indonesia in 2014, we now operate two megastores and three regular outlets. We aim to open 12 more outlets by 2018. This is our commitment in catering to the demands of Indonesians,” he said.

    The first Courts megastore, pictured above, opened at Bekasi, in Kota Harapan Indah, on the eastern side of Jakarta.

    Courts Asia said that as of November 2015, Indonesia accounted for 1.7 per cent of the company’s total sales of S$186.1 million – up 4.2 per cent year-on-year.

    Indonesia is expecting retail growth of between 11 and 12 per cent this calendar year, after a modest 8 per cent growth in 2015.

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  • Apple to Open a New Store in China’s Largest Luxury Shopping Mall

    Apple to Open a New Store in China’s Largest Luxury Shopping Mall

    Apple Inc.  announced on Saturday that it would soon open its 31st outlet in Qingdao, China. The retail outlet will be located in China’s biggest shopping complex, MixC luxury shopping mall, according to the reports. The new store is expected to open between 10AM to 10 PM local time on weekdays and weekends.

    China has always been a lucrative market for the tech giant and in recent years, Apple has aggressively expanded its franchise operation in the world’s largest smartphone market under the leadership of Angela Ahrendts, senior VP of retail and online stores at Apple.

    Previously, the tech giant has also effectively carried out its operations in the leading Chinese cities and provinces, which includes Chengdu, Beijing, Nanning, Shenyang, and Xiamen. As of now, there are five stores operating in Beijing.

    Apple is one of the leading foreign smartphone manufacturers operating in China, and generates billions of dollars in revenues from the country. In the last quarter, Apple’s sales in China, including Hong Kong and Taiwan surged 99% to $12.5 billion year-over-year (YoY), while iPhone sales in the region rose 120% YoY. Amid increasing demand, the tech giant also aims to open more than 40 stores in China in the next few years. China is the company’s fastest growing market in recent years, and it plans to take full advantage of the potential growth opportunities in it.

    In addition, the smartphone manufacturer is making continuous efforts to increase its market share in the world’s second largest economy. On the other hand, growing trend of online shopping has significantly increased demand for the mobile users in the mainland territory.

    china apple user

    Based on month-over-month results, the number of Chinese mobile consumers has increased tremendously in the past one year. This number is mainly attributed to the boom in the movie industry, resulting in the increasing online ticket booking. Similarly, the boom in the e-commerce industry also raised the number of smartphone users in recent years. According to a report, as traffic issues in the country prevails, an increasing portion of population is using their smartphones to book movie tickets or for online shopping.

    China is considered to be the second largest revenue-generating country for Apple after the US. The company’s sales have grown to $12.5 billion from $5.7 billion last year. If the growth continues at such an increasing rate, it is expected that China will surpass the US and becomes the company’s largest market by 2017.

    According to a claim made by 9to5Mac’s analyst Mark Gurman, the California-based company plans to come up with a new iPhone in March 2016. The new device will be called the “iPhone 5se.” In addition, Mr. Gurman also indicated that iPhone’s latest version will also contain an upgraded 8 megapixel rear camera, a curved glass design, and Live Photos feature. Given the previous track record, the product will likely become a success in China.

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  • Strong Resale Market for iPhones Boosts Apple in China

    Strong Resale Market for iPhones Boosts Apple in China

    The Journal is detailing Apple Inc.’s remarkable success in China, particularly with the iPhone, and questions about Apple’s future as China’s economy slows.

    Part of that success stems from the strong resale value of used iPhones, which many consumers view as a way to narrow Apple’s price premium, compared with most other smartphones. Unlike in the U.S., most Chinese purchasers pay for the iPhone in full up front.

    Apple offers its own trade-in program at its retail stores in China, where it offers store credit for used iPhones. But there’s also a massive network of small shops that buy and sell used iPhones.

    In Chongqing, the biggest city in southwestern China, Luo Lishan operates a stall in the basement of an electronics market only steps from an Apple store. She sells new and used iPhones and says that a year-old iPhone in good condition can fetch 3,000 yuan ($450) depending on the model, while other brands’ phones usually go for less than 1,000 yuan.

    “The iPhone keeps its value better than other phones,” she says, as she puts a SIM card into a new iPhone 6S Plus for a customer.

    To protect the resale value, Chinese consumers use their phones differently than many in the West. For example, they make more use of Apple’s “Assistive Touch” feature, which is intended for people with disabilities who have trouble pushing the home button to control the phone.

    Chinese users who worry about wearing out the home button instead tap Assistive Touch, which appears among other apps as a dimly lit gray square containing a white circle surrounded by two rings. Enabling the feature offers on-screen shortcuts to access Siri, raise the volume and other actions.

    To protect the screen, many Chinese iPhone owners also affix a screen cover. It’s so common that many electronics retailers affix the cover in the store at the time of purchase. Screen-cover vendors also set up booths outside Apple stores.

    Last October, a few weeks after Apple introduced the iPhone 6S and 6S Plus, hawkers waited outside Apple’s Sanlitun store in Beijing. Inside, Apple had sold out of metallic pink iPhones – a color Apple calls rose gold. Hawkers sold the hard-to-get phone outside at a mark-up.

    Prospective customers were directed to a man sitting on the steps next to the store. His job was to inspect the condition of an old phone offered for trade. If it was an iPhone, he’d check the screen for nicks and dings and look inside the phone software to verify details such as storage size and country of origin.

    After the inspection, he offered a price for the old phone. If the customer agreed to the price, the customer paid the difference between the cost of the new iPhone and the resale price of the old phone.

    After one trade, the man added the cash to thick bundle in his hand and tossed the old phone with other handsets purchased that day.

     

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  • Fake Apple Stores In China Are On The Decline

    Fake Apple Stores In China Are On The Decline

    Due to stricter copyright laws and laws to protect intellectual property in the US, finding a fake Apple retail store is next to impossible. However over in China, such stores used to run rampant several years ago where not only did the shops look like the official Apple Store, but employees were also given similar uniforms.

    In fact there was once this story about an employee who had no idea he was working in a fake Apple Store. That being said, a report from Reuters has recently noted that the number of fake Apple Stores in China are said to be on the decline. Some claim that this is because interest in Apple products in China are on the decline, while others speculate that Apple might be working with the government to clamp down on these stores harder.

    fake apple store

    A third possibility is that with Apple expanding their official retail presence in the country, residents of China are starting to wisen up to these fake stores, leading to their decline. The third option is probably the most likely, especially since Apple will be opening its 33rd store in the country this week, with plans to expand to 40 locations by the middle of the year.

    In the meantime some of these fake stores have since been replaced by regular smartphone stores which sells local brands such as Xiaomi, Huawei, Meizu, OPPO, and etc.

  • Korea’s Samsung and LG TV Prices Are 2~3 times Expensive than Those of USA’s

    Korea’s Samsung and LG TV Prices Are 2~3 times Expensive than Those of USA’s

    During the Black Friday event in the United States in November 2015, Samsung Electronics’ 55-inch SUHD TV was sold at a price of 1.15 million won. This was when it was sold at a price of around 3 million won at retail stores in Korea.

    LG Electronics’ 65-inch UHD TV was sold at a price of around 5 million won in domestic consumer electronics stores, much higher than its U.S. price of 2.43 million won.

    Samsung SUHD_JS9500

    The prices of consumer electronics items are staying high in Korea. The average domestic sales prices of TVs, smartphones, laptop computers, tablet computers, vacuum cleaners, and coffee makers are higher than those of major industrialized countries, including the United States, Germany, and Japan. This is the background behind last year’s 20-percent increase in Koreans’ online purchase of foriegn products.

    Most of Korean home electronics items come equipped with “excessive features.” Unlike major foreign home electronics companies which focus on core functionalities, Korean counterparts are raising the prices of their products by adding a variety of high-end specs.

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  • Chinese retailing giant JD.com tests drone in rural areas

    Chinese retailing giant JD.com tests drone in rural areas

    China’s online retailing giant JD.com has started conducting trial deliveries using drones, and plan to roll it out for delivery in rural China, the state media reported today.

    The company said the unmanned aerial vehicles or drones will not deliver packages directly to shoppers but will instead help transport bundles of items from its distribution stations to 150,000 representatives mobilised across rural China who will then get them to shoppers.

    The distance between distribution stations to rural representatives, usually less than 10 km according to JD, are more fixed for engineers to design drone itineraries and landing points. Representatives will be notified in advance to wait for drones to land with packages, Xinhua news agency reported.

    JD.com’s CEO Richard Liu Qiangdong had said last year that the company is developing drone delivery to meet the rising retail demand in China’s rural areas, where complex terrain and underdeveloped infrastructure have compromised timely human courier delivery.

    Both JD.com and its arch rival Alibaba have been working to unleash consumption demand from China’s 618 million rural residents, whose income growth has been outpacing their urban peers in recent years despite a slowing economy, the report said.

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  • Xiaomi to take its time on deciding on single brand retail licence

    Xiaomi to take its time on deciding on single brand retail licence

    Xiaomi is keen on applying for a single-brand retail licence in India and will take a final call on the matter in a couple of weeks after more consultations as the Chinese company strives to deepen its presence in the world’s fastest-growing smartphone market, where it just recorded its best-ever quarter by sales.

    As part of its India strategy for 2016, Xiaomi will locally manufacture most of the phones it will sell in the country, begin investing in startups and expand its offline presence, Manu Jain, the company’s head of India operations, told ET.

    “We would be very keen (on applying for single-brand retail) but we would want to understand this better. We are talking to multiple people who are subject matter experts on this to understand everything about it before we go ahead,” Jain said. “Overall, this looks very positive from our perspective.”

    Once it applies, Xiaomi would join Apple as among the top foreign brands opting for a direct presence in India, which eased foreign direct investment rules for single-brand retailing in November. The South Asian nation relaxed mandatory local procurement conditions for high-tech companies and allowed single-brand licence holders to sell their products directly online.

    Xiaomi currently sells 90% of its products through online portals Flipkart, Amazon, Snapdeal and its own store, Mi.com, and has ventured into the offline market with outlets of Airtel and The Mobile Store selling about 10% of its devices. The company will forge more partnerships to expand its offline presence in 2016 and will focus equally on revving up sales through its own portal.

    Jain said the aim would be to achieve a balance between online and offline sales, similar to what it has in China, where one-third of its sales comes from offline channels.

    Through a combination of online and offline sales in India, Xiaomi clocked its best-ever three months yet, selling between 1 million and 1.5 million smartphones in the quarter ended December. “This is the second consecutive quarter that we’ve crossed 1 million…despite the competition, we continue to grow aggressively,” Jain said. In the September-ended quarter, sales were up 45% on-quarter.

    “One of our targets for 2016 is to invest in startups,” Jain said, which would replicate the model followed by the company in China. Though Jain didn’t specify the amount, he said the company would be flexible and investments would depend on the startup and the stage it has reached.

    India will continue to be a critical market and Xiaomi will reduce the time gap between China and India product launches and also introduce more models in 2016. Separately, it will scale up local manufacturing to make a majority of the phones that it sells in the country.

    Jain did not share the present manufacturing capacity at Sri City in Andhra Pradesh, where Foxconn manufactures phones for Xiaomi, but said that the scale-up will be “significant.”

  • Xiaomi keen on single brand retail license

    Xiaomi keen on single brand retail license

    Xiaomi is keen on applying for a single-brand retail licence in India and will take a final call on the matter in a couple of weeks after more consultations as the Chinese company strives to deepen its presence in the world’s fastest-growing smartphone market, where it just recorded its best-ever quarter by sales.

    As part of its India strategy for 2016, Xiaomi will locally manufacture most of the phones it will sell in the country, begin investing in startups and expand its offline presence, Manu Jain, the company’s head of India operations.

    “We would be very keen (on applying for single-brand retail) but we would want to understand this better. We are talking to multiple people who are subject matter experts on this to understand everything about it before we go ahead,” Jain said. “Overall, this looks very positive from our perspective.”

    Once it applies, Xiaomi would join Apple as among the top foreign brands opting for a direct presence in India, which eased foreign direct investment rules for single-brand retailing in November. The South Asian nation relaxed mandatory local procurement conditions for high-tech companies and allowed single-brand licence holders to sell their products directly online.

    Xiaomi currently sells 90% of its products through online portals Flipkart, Amazon, Snapdeal and its own store, Mi.com, and has ventured into the offline market with outlets of Airtel and The Mobile Store selling about 10% of its devices. The company will forge more partnerships to expand its offline presence in 2016 and will focus equally on revving up sales through its own portal.

    Jain said the aim would be to achieve a balance between online and offline sales, similar to what it has in China, where one-third of its sales comes from offline channels.

    Through a combination of online and offline sales in India, Xiaomi clocked its best-ever three months yet, selling between 1 million and 1.5 million smartphones in the quarter ended December. “This is the second consecutive quarter that we’ve crossed 1 million…despite the competition, we continue to grow aggressively,” Jain said. In the September-ended quarter, sales were up 45% on-quarter.

    “One of our targets for 2016 is to invest in startups,” Jain said, which would replicate the model followed by the company in China. Though Jain didn’t specify the amount, he said the company would be flexible and investments would depend on the startup and the stage it has reached.

    India will continue to be a critical market and Xiaomi will reduce the time gap between China and India product launches and also introduce more models in 2016. Separately, it will scale up local manufacturing to make a majority of the phones that it sells in the country.

    Jain did not share the present manufacturing capacity at Sri City in Andhra Pradesh, where Foxconn manufactures phones for Xiaomi, but said that the scale-up will be “significant.”

  • India And Southeast Asia Could Be The ‘New China’ For Apple

    India And Southeast Asia Could Be The ‘New China’ For Apple

    I first wrote about the potential of Asia for Apple in September 2014. My article, titled “Asian Growth sends strong bull message for Apple” met with a lot of critical comments that the Apple brand would never catch on in China. The people were too poor, the local competition was too strong, the political and legal hurdles were an insurmountable barrier, etc. Of course, such critics have been proved very wrong. In the company’s 2012 annual report, China was not even listed as a specific operating segment. China is now second behind the US in terms of operating income. Now everyone writes articles about how vital China is to the company.

    Apple’s Q1 2016 results showed the importance of international sales (66% of revenue) to Apple, and specifically the importance of Asia.

    The Americas: revenue decline of 4% to US$29.3 billion.

    Europe: revenue increase of 4% to US$17.9 billion.

    Japan: revenue decline of 12% to US$4.8 billion.

    Asia-Pacific: revenue increase of 4% to US$5.4 billion.

    Greater China: revenue increase of 14% to US$18.4 billion (and + 47% sequentially).

    India specifically, and Asia in general, now offer the same future potential for Apple as did China. Indeed, Asia is already realizing that potential for the company.

    India

    Of course, India is not exactly the same challenge as was China, but the similarities are very apparent. Again, the naysayers state the people are too poor, the local competition is too strong, and the political and legal hurdles (including rampant corruption at every level of society) are insurmountable. For the same reason this was a false argument in regard to China, it is a false argument in regard to India.

    China’s economic growth is indeed slowing. However, consumer demand is strong as China transitions from an industrial economy to a consumer-driven one. Apple will continue to grow there, but more slowly than the 84% growth in revenue it enjoyed last year. Despite all the talk of gloom and doom, in Q1 2016 iPhone unit sales in China did increase by 19%. Mac sales increased 27% year-on-year as the Apple “ecosystem” increasingly embeds itself in the country.

    The country forecast by the IMF to have the fastest growth of any major economy this year is India, at 7.5%.

    Of course India has the negative of a much lower GDP per head than China or of many other Asian countries. The IMF assesses Chinese GDP per head in 2015 at US$8,280. For India it has a figure of US$1,688. What this misses out though is the incredible wealth inequality in India. The middle class there is growing fast and has a strong culture of showing off brand affordability. General estimates are that by 2025 the country will have over 500 million people who can be called “middle class.” As Tim Cook commented in the Q1 2016 conference call, the median age of the country is only 27, the kind of demographic that economists love.

    As my October 2015 article pointed out, India is forecast to have 314 million mobile users by 2017, which would be the second-highest total of any country.

    Retail in India

    Despite the headlining and highly-paid Angela Ahrendts coming on board, Apple has been slow to ramp up its retail presence in Asia. Only about 10% of Apple’s worldwide total of stores are in Asia and Australia. Only in China has the pace of new stores been quickened. In total, 26 new stores are planned for China this year, doubling their current number. The latest of these, the 33rd, opened in Qingdao this week. Apple targets to have 40 stores open in China by the middle of this year. This still compares poorly with the 53 retail stores, for instance, in California alone.

    In India, retail could be vital for success. So far Apple has been handling the retail market in India through sub-distributors, but this has put their brand image in the hands of often not very competent third parties. Historically, retail has been difficult for foreign companies in India, but the Modi Government is relaxing the rules.

    Previously, single-brand retailers which were foreign-owned had to source 30% of their product locally. Additionally, there were heavy restrictions on the use by such companies of e-commerce. With these restrictions being loosened, in mid-January, Apple filed an application to open the first real Apple Store in the country. Just as Tim Cook personally led the political dance to get Apple established in China, so he has reportedly met twice with Indian Prime Minister Modi in the past six months.

    The India Market

    Almost identically to when Apple entered the China market, the smartphone market in India is dominated at present by Samsung (OTC:SSNLF) and by local manufacturers. We all know what happened in China when that was the case a couple of years ago.

    IDC estimates that in the third quarter of 2015, Samsung had 24% of the market and Lenovo held second place among imported phones. Apart from them, it was local manufacturers such as Micromax, Lava and Intex. This is ripe for Apple to follow their China strategy. That means supplying current new models to the wealthier middle-classes and their older models at a strongly discounted price to those who cannot afford the current model. Apple is already doing this in fact. As an example, the 6S originally sold for 62,000 rupees, while the 5S price was cut in early December to 24,999 rupees. This put it in a similar price bracket to the Samsung “A” and “E” series phones. Now the 16GB 6S has been further reduced to 48,499 rupees.

    Up to March 2015, Apple increased sales by 44% to over US$1 billion. It is expected that this figure will double in the year to March 2016. In Q1 2016, revenue increased 38% (or 48% in constant currency terms). iPhone unit sales increased 76%.

    Sales are growing from a small base, but retail expansion and a new concentration on India by Tim Cook should see sales take off in the next couple of years. An accelerated planned roll-out of 4G in India, just as we saw in China, will also help the company’s expansion. Interestingly in the Q1 2016 conference call, Tim Cook made specific reference to rising 4G penetration in China as a boost to Apple sales. No doubt the same is equally true of India.

    He also stressed the importance of emerging markets in general and LTE penetration to the future. He commented:

    “If you go outside of China into the other emerging markets, our share is much lower and the LTE penetration is so low…. it indicates to me that there is still a lot of people, a tremendous number of people in the world, that will buy smartphones.”

    The GDP per head differential with China will mean that India takes longer to reach the stratospheric sales figures we saw in China. Equally, the Apple ecosystem is not as strong in India and it will take time for iTunes and the App Store to become a way of life there.

    One potentially very bullish factor for Apple is the fact that their biggest manufacturing partner, Foxconn, has applied for manufacturing approvals in the country. This has led to obvious speculation that iPhones will be manufactured in the country, with all the myriad advantages that would bring. Foxconn is proposing to have 20 facilities operating in India by 2020 at an investment cost of US$5 billion.

    Elsewhere in Asia

    China may have a population of 1.4 billion and India 1.25 billion, but elsewhere in Asia the sheer mass of the addressable market is substantial. Figures of population of other Asian countries for 2015 and World Bank details of GDP per capita for 2014 illustrate the often-overlooked potential in Asia outside of China and India. In the Q4 2015 conference call, the company had stated that revenue increased 27% in that period for this region.

    There are over 1.8 billion people in Asia outside the behemoths of China and India. This potential is reinforced by the fact that these countries have the demographics that economists look for. That is to say, young growing populations with improving educational levels in countries with strong growth rates. This group of countries alone far exceeds the populations of US or of Western Europe.

    Below, I summarize just a few of the Asian countries where Apple’s footprint has grown strongly.

    Japan (population 127 million and GDP per capita of US$36,194) is the market in the world where the Apple ecosystem is generally considered at its strongest. In the Q4 2015 conference call, Apple had stated that Japan revenue increased 9%, not bad for a mature market. However in Q1 2016, revenue declined 12%, although in constant currency terms it was a decline of only 4%. This is still of some concern for Apple, and the figures seem to reinforce market rumors that the iPhone 6 and 6S were not so well received there in what is already a mature market for Apple.

    Indonesia (population 255 million and GDP per capita of US$3,491) and the Philippines (population 101 million and GDP per capita of US$2,872) are both seeing Apple sales grow strongly. Both have very young populations and the Philippines was the strongest growing economy in Asia last year. Apple is planning to invest in R & D facilities in Indonesia following new government regulations to come into effect in 2017. These will require overseas suppliers to include 30% of import value in their products from either local manufacturing or from software input. Official figures show that Indonesia imported US$5 billion worth of mobile phones in 2015. The real figure would be higher as it does not include parallel imports through Singapore.

    In Korea (population 49 million and GDP per capita of US$27,970), Apple has made significant inroads. This is despite Korea being the home market of the formerly all-powerful Samsung. At the Q1 2016 conference call, it was reported that iPhone sales increased 45% there.

    Thailand (population 67 million and GDP per capita of US$5,977) and Malaysia (population 30 million and GDP per capita of US$11,307) are seeing significant growth for Apple. Exact growth rates have not though been released by Apple.

    Vietnam (population 93 million and GDP per capita of 2,052) is an interesting study. The country was a long-time foe of the US and has a low GDP per capita of US$2,052. Yet, Apple opened a subsidiary there in October last year on the back of sales that had tripled in the first half of 2015. This will allow them to open their own store and sell directly to Vietnamese consumers. There are a startling 124 million cellphone subscribers in the country which shows the fast development in the country.

    Singapore (population of 5.6 million and GDP per head of US$56,284) will be seeing its first Apple store opening in 2016. With a GDP per capita higher than the US and a large re-export business, this is a strong market for the company. Apple Pay will be launched here in 2016. The other Asian destinations for Apple Pay this year will be China and Hong Kong.

    Different commentators may argue as to what extent these countries can have a substantial effect on Apple’s bottom line. There seems little doubt to me as to the strongly accretive effect on the company in the medium to long term.

    For 2016, the ADB (Asian Development Bank) has forecast GDP growth of 7.3% for South Asia, 4.9% for S-E Asia and 6.7% for China. Though lower than in some previous years, this is a lot stronger than likely growth rates in developed countries and will further narrow the gap between the two.

    Conclusion

    It should be only a matter of time before China is the single biggest market for Apple in terms of revenue. As Tim Cook said on the earnings call, the company is “maintaining our investment plans for China.”

    It is probably only a matter of time and demographics before the rest of Asia is Apple’s third biggest market in terms of revenue. This makes it false to argue that growth for the iPhone and other Apple products is limited because of the company’s high market share in its mature markets. Short term, currency fluctuations somewhat tempered Apple’s still healthy growth in the region, but that will not be a continuing long-term issue.

    These immature markets signify that Apple has very significant growth opportunities for years to come, as Tim Cook pointed out. The company may have been somewhat slow to roll out its retail footprint around Asia, but this now seems to be on the way. At the Q1 2016 results call, it was revealed that the company has US$215.7 billion in cash. US$200 billion of this is stashed off-shore. Retail expansion in Asia could well be the best use Apple has for a portion of this huge cash pile. This will help set up Apple’s long-term continuing growth in the region.

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  • Drone Giant DJI Opens Flagship Store In South Korea

    Drone Giant DJI Opens Flagship Store In South Korea

    The Seoul store will open in March. It features five stories and 9,364 square feet showcasing the entirety of DJI’s consumer products. That includes its line of Phantom drones, as well as its Inspire, Matrice, and Spreading Wing drones. Also on display will be DJI’s aerial cameras and its Osmo handheld camera. The store has a theater offering visitors films and other visual content shot using DJI gear, as well as an “experience zone” where DJI pilots will perform demos of the company’s drones.

    A DJI spokesperson said the company has no list of future retail locations. “For us, getting the retail experience right is far more important than the rapid opening of retail stores,” the spokesperson said. “For now, we’ve selected two locations—Shenzhen and Seoul—where we see both opportunity to grow and to offer a hands-on, immersive experience for customers.”

    DJI store in Shenzhen, China

    DJI currently has a 70% share of the global consumer drone market, the company said, with the United States its largest market, followed by Europe.

    In the United States, the federal government now requires owners of most consumer drones to register them or face potentially substantial fines or even imprisonment. As of earlier this month, more than 180,000 people had signed up.

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  • A bigger shoe may yet drop for Apple stock

    A bigger shoe may yet drop for Apple stock

    As analysts and investors eye prospects for Apple stock, many are drilling down on the company’s sales and earnings prospects in China, its biggest overseas market.

    On Wednesday, the company’s stock was down as much as 5 percent, a day after the tech giant reported disappointing sales of the iPhone and the slowest year-over-year growth ever for the blockbuster device. That news raised a red flag, since those sales account for two-thirds of Apple’s total revenue.

    In response, Apple CEO Tim Cook remained confident on the outlook for China. He noted that Chinese incomes are rising and their savings rate is among the highest on the planet. China’s consumers sent retail sales up 11 percent year-over-year in December — not very ruffled, for now, by the nation’s market turmoil.

    The question, for Apple, is whether that confidence can last: Cook noted in a conference call after Apple’s earnings announcement Tuesday that sales in Greater China, especially Hong Kong, began to “soften” in January. But for now, China’s consumers are the reason why Apple execs rattled off a list of eight nations and regions they were worried about, from Canada to Turkey, without mentioning China.

    “Young urban Chinese elites have savings, so they can afford it,” said Todd Lee, senior director of economic consulting firm IHS Global Insight.

    The damage was less for the simple reason that China’s consumers are relatively flush, even as the nation’s investment and export sectors are enduring shocks. Their savings rate is about 38.5 percent of income, and average per capita disposable income rose 7.4 percent in 2015, even as China’s financial markets whipsawed throughout the second half of the year.

    That’s also a reason why expectations are fairly high for the Jan. 28 report from Chinese e-commerce giant Alibaba, which RBC Capital Markets analyst Mark Mahaney said will boost adjusted profit per share by 31 percent. Consensus estimates are lower, calling for a 25 percent gain.

    Apple said its overall profit for the first quarter of its 2016 fiscal year rose 1.9 percent, to $18.4 billion, or $3.28 per share, from $18 billion and $3.06 a share last year. (The 7.2 percent gain in per-share earnings reflects stock buybacks that reduced Apple’s share count.)

    Sales rose 1.7 percent, to $75.9 billion, but would have been up 8 percent if the value of the world’s different currencies had stayed the same as last year, Apple said. “The difference is about the size of an average Fortune 500 company,” Cook said.

    iPhones’ average price was reduced by $49, to $691, by the rise in the U.S. dollar, which makes each sale in local currency abroad less valuable to U.S.-based shareholders. Currency is also the reason for about a third of the drop in revenue that Apple projected for the March quarter.

    By contrast, Apple’s Brazil sales fell because of a 40 percent drop in the Brazilian real that required Apple to raise iPhone prices there, dragging overall sales in the Americas 1 percent lower. Japan was down 12 percent, sales in Russia were hurt by the collapsing price of oil and the ruble, and the falling euro combined with Russia’s woes to turn an 18 percent European sales gain in constant currency into only a 4 percent as-reported gain. Apple now gets two-thirds of its revenue from outside the U.S.

    “Major currencies, such as the Canadian dollar, Australian dollar, Mexican peso and Turkish lira have declined 20 percent or more,” Cook said, adding that “$100 of Apple’s non-U.S. dollar revenue in Q4 of 2014 translated to only $85 last quarter due to the weakening currencies in our international markets.”

    Analysts had expected Apple to earn $3.23 a share on $76.6 billion in revenue.

    Shares of Apple rose modestly after the earnings were announced, then sagged as Cook and other executives talked on the post-earnings conference call with analysts. Having closed at $99.99, they slumped under $95 on Wednesday morning. The stock was above $120 as recently as November.

    “[The] negative reaction after hours reflect[ed] … a huge shift in tone as AAPL sounded more susceptible to China macro versus 90 days ago,” RBC Capital Markets analyst Amit Daryanani wrote.

    Apple’s relatively strong China performance isn’t an anomaly or tied to any Asian enthusiasm for a quintessentially American brand. China’s retail sales gains all last year were nearly five times the rate in the United States, where consumer spending has also been growing faster than the economy as a whole. According to Moody’s Analytics, China’s retail sales were up by double digits in every month of 2015.

    According to Lee of IHS Global Insight, China’s consumers have increased their spending at a fairly predictable pace in recent years, behaving much the same way when the investment side of the economy is growing faster than 10 percent as they are now, with overall growth reported at just under 7 percent in official statistics. Investors have openly questioned whether the official statistics exaggerate the health of China’s economy.

    The price of an iPhone is still stiff for Chinese consumers who make an average income of about $10,000 per three-person household, Lee said. But the average income of the top 20 percent of the population is about $23,000, making them the primary target of Apple’s continued push into China. And consumers in China still have enough savings to keep consuming — though that could change if markets there keep gyrating, he said.

    “It depends on the severity and the type of the slowdown,” Lee said. A slow, steady decline in growth wouldn’t be likely to spook consumers, but “if there’s a banking crisis that crushes the economy, all bets are off.”

    Not all bets. Long-term prospects are bullish enough that Apple isn’t planning to pull back on investing heavily in China, Cook said.

    “The middle class in China was less than 50 million people in 2010, and by 2020 it’s projected to be about half a billion,” he said.

    But in a possible sign that even Apple is hedging its bet on China, Cook’s quickly changed the topic to India — which has a younger population and lower smartphone penetration than China, and where Apple boosted sales 38 percent.

    “India is incredibly exciting,” Cook said. “It’s quickly becoming the fastest-growing BRIC country.”

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