1 Talking Point 6 Week in 60 Seconds 7 Auto Industry Week in China 8 Rise of the Renminbi 9 Aviation 10 Energy and Resources 11 Telecoms 13 Economy 1 February 2013 14 Society and Culture Issue 180 19 And Finally www.weekinchina.com 20 The Back Page Apple boss in China makeover? m o c . n i e t s p e a t i n e b . w w w With Apple’s shares in a slump, Tim Cook looks to China for growth Brought to you by Week in China Talking Point 1 February 2013 Tim Cook’s Chinese whispers Is a deal with China Mobile the answer to Apple’s share slump? China in his hands: Tim Cook on a visit to China, which he says will soon be Apple’s biggest market “ he only companies that report feeling a little miffed that the news cisions ahead. The most important? Tbetter quarters pump oil,” was greeted with an 11% slump in Whether to broker a possibly game- Apple’s chief executive Tim Cook the Apple share price. In fact, the changing deal with China Mobile. boasted to colleagues last week, company’s stock has been in decline after announcing the company’s for months – mostly on fears that So why is the share price down? latest results. its days of supercharged growth Sellers of Apple’s shares argue that In fact, Apple’s $13.1 billion profit may be behind it. revenues failed to meet market ex - was the world’s fourth best, with There are, of course, still some pectations for the third successive only Gazprom, Shell and Exxon- bulls out there, and the über Apple quarter. Gross margins also showed Mobil enjoying better quarters in fans remain steadfastly hopeful the signs of substantive decline, while corporate history. stock will eventually hit $1,000. But unit sales of 47.8 million iPhones Charged with what many onlook - as Tim Cook has probably realised, came in below expectation too. Al - ers regard as the almost impossible getting the stock heading back in though the quarterly profit of $13.1 P h o t o task of taking over from Steve Jobs, that direction looks increasingly de - billion set a new record, it was only S o u r Cook delivered the record profit in pendent on Apple delivering big marginally up (by $14 million) on c e : R e Apple’s most recent fiscal quarter. sales growth in China. To pull this the previous period. u t e r s So perhaps he can be forgiven for off Cook has some big strategic de - Apple stock is now down more 1 Week in China Talking Point 1 February 2013 than a third from its most recent high of just over $700 last Septem - ber. Its boosters are fighting back on two main fronts. In the short run, the analyst community is being blamed for overhyping their revenue and profit forecasts (a piece in Fortune magazine sug - gested that “Apple’s analysts did worse than the company this quar - ter”). But the other response is that, in the longer term, it’s unrealistic to expect Apple to keep on delivering growth at recent levels, as the law of large numbers is bound to have a braking effect. Michael Moritz, chairman of in - Regional Bond House Dim Sum Bond House vestment firm Sequoia Capital, said of the Year of the Year something similar in the Financial Times on Monday, warning that it was hard for such a huge company to keep growing quite so fast. Attacking the “mewling and mindless pandemonium” of the company’s critics, Moritz also pointed out that if Apple were a Singapore Equity House Best International of the Year Bond House country, its revenues would rank it 45th in GDP terms, above Pakistan and New Zealand. “Almost enough to make you think Apple should have a seat in the UN,” he quipped. How about China’s contribution? Revenues from China were cele - Best Local Currency Best Offshore RMB House Bond House brated as a highlight, and for the first time Apple broke out the data for a new Greater China sales terri - tory – which it defined as China, Hong Kong and Taiwan. Perhaps that was because the re - sults were the best ever, with sales of $6.8 billion – 67% up year-on- year, much faster than the global Best Export Finance RMB House of the Year Bank in Asia-Pacific average. Sales of iPhones also dou - bled in the quarter. Apple now looks fully focused on the China market, after a long pe - riod in which the country seemed a lesser priority (see our Focus Issue The Magnificent Seven for a fuller HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and discussion). HSBC Bank USA, NA. 13-0002 As WiC has also reported before, 2 Week in China Talking Point 1 February 2013 Steve Jobs never visited China in an But isn’t Apple choosing margin billion over its fiscal 2012 period official capacity but Cook made his over market share? tells a very different story. China second visit in less than a year last Asked during the earnings call Wireless reported profits of just month, telling the local press that whether Apple should be selling under $20 million in its own most he expects China to overtake the cheaper smartphones, Cook ap - recent earnings announcement, for United States as Apple’s largest peared to reject the idea, claiming the first six months of last year. market soon. “I cannot accurately that he had no interest “in revenue Nonetheless, there are unsub - predict when that will happen, but I for revenue’s sake”. stantiated rumours that Apple is have no doubt that it will,” he told Phil Schiller, senior vice presi - working on a lower-priced phone it Sina, an internet news portal. dent of marketing, told the Shang - will launch in the coming months. hai Evening News something Not that Cook said anything to con - Any clouds on the horizon? similar recently, saying that Apple firm this during the earnings call, Despite the record revenues, Apple’s won’t develop cheaper phones to but he did highlight that Apple has a critics say it is locking itself out of grab market share. history of offering different prod - the fastest-growing area of the Chi - ucts at different price points, citing nese market by refusing to offer the release last year of the iPad mini. lower-price smartphones. He also insisted that the Californian Much of last week’s media cover - firm has never feared cannibalising age picked up on this concern, usu - its product portfolio, with the launch ally citing a December report from of the iPhone cutting into iPod rev - market researcher IDC, in which enues, and sales of the iPad displac - Apple dropped from third to sixth in ing some for the MacBook. smartphone sales, behind rivals like The counterview is that Apple Samsung, Lenovo, Huawei and ZTE. will struggle to develop a smart - Because most of the unit growth phone priced low enough to pick up in China is coming at the lower end significant new market share – and of the market, IDC estimates that that it would be foolhardy to even Apple’s market share fell to 4.2% in try, because of the impact on prof - the quarter ending last September, Coolpad, even cooler price? its. Company guidance is already from 5.8% in the same period a that higher sales volumes for the year earlier. But with new smartphone sales iPad mini this year will pull down The concern is that Apple is pric - in China expected to reach 240 mil - gross margins across the company. ing itself out of the market, as more lion by the end of 2013, the question Launching lower-priced iPhones and more Chinese opt for cheaper is whether Apple can afford to ig - would accelerate the decline. handsets, many of them running on nore the entry-level market. One alternative is to keep prices Google’s Android. Steven Millward, writing at the where they are but make payment Aside from its better-known Tech In Asia blog, warned that doing an easier undertaking. Apple’s re - competitors, Apple was outsold so might see Apple repeat the early cent launch of China payment plans too by China Wireless Technolo - error in software strategy that made is an attempt to do just that: cus - gies, whose Coolpad handsets each Mac OS into a fringe platform, tomers wanting to buy products retail for about Rmb700 ($112). dwarfed by the widely used Win - from its online store can now pay in Prices for the iPhone 5 start at dows. Will it miss out on the millions up to 12 monthly instalments, on an Rmb5,288, and even former insid - of potential customers who can’t af - interest-free basis. The service, ers say that the gap should be a ford to pay out two or three months’ which is offered to holders of China wake-up call for the company’s salary for the latest iPhone, he asked? Merchants Bank credit cards, also al - management. Apple “needs to Cook’s likely response is that lows for payments over longer peri - adapt to where the growth is,” one - Apple is trumping its smartphone ods (up to 24 months), although in time chief executive John Sculley rivals in revenue and profit com - this case interest charges apply.