China Watch: Is Apple in Danger With Growth of Low-End Smartphone Market?

By Sterling Wong  NOV 23, 2012 12:35 PM

Nokia and Volkswagen also make the news.

 


MINYANVILLE ORIGINAL Is the worst over for China’s economy? The HSBC Flash Manufacturing Index (PMI), which measures manufacturing activity, jumped to a 13-month high of 50.4 in November.  This was the first time the reading topped 50 in 13 months, which means that manufacturing activity expanded in November after more than a year of contration.
 
"I think this confirms that momentum is continuing to pick up as we go into the fourth quarter, and that the selective easing by the Chinese authorities is now having a greater impact,” said JPMorgan Asset Management global market strategist Geoff Lewis.
 
Ross Strachan of London-based Capital Economics was less optimistic, saying that China’s growth momentum would not last given continued weak global economic conditions. While new export orders grew sharply, said Strachan, "It is noticeable that overall new orders fell from 51.2 to 50.1 and, given the strength in export numbers, this implies that domestic orders fell back even more sharply.”
 
Here is this week’s business news:
 
Apple (NASDAQ:AAPL): Should Apple start competing in the low-end smartphone market? Perhaps it should, argues Business Insider’s Henry Blodget, if the Cupertino, California-based company does not want to lose market share to Google (NASDAQ:GOOG). Apple now has only about a 15% share of the global smartphone market, whereas Android devices now have a 75% share. While Apple is capturing immense profits at the premium end of the market, Blodget points out that app developers “tend to standardize around the platform with the most market share,” so Apple’s weakening market share might become a liability in the future.

The increasing prominence of the low-end smartphone market is powered by strong growth in emerging markets such as India and China. In the mainland, the installed base of smartphones will double to 500 million by the end of 2013, with many college students, blue-collar workers, and young white-collar workers choosing cheaper options from the likes of Samsung (PINK:SSNLF) and Lenovo (PINK:LNVGY).
 
Blodget writes:
 
If Apple wants to defend, much less grow, its market share relative to Android, it's going to have to offer low-priced phones.
If it offers low-priced phones, however, its profit margin will almost certainly drop.

Defending market share is much more important to the company's long-term value than maintaining a particular profit margin, so this shouldn't be a tough decision for Apple. But it may cause some angst among the company's investors.

Nokia (NYSE:NOK): Pictures of Nokia’s 920T , which is the TD-SCDMA version of the Lumia 920 tailored exclusively for China Mobile (NYSE:CHL), were leaked this week by Sohu Digital.



The Windows (NASDAQ:MSFT)-powered phone is expected to debut in China in time for the start of the Chinese New Year in early 2013.
 
Volkswagen (PINK:VLKAY): Germany’s Volkswagen will invest 14 billion euros in China and build four plants in the next four years, said the automaker’s China chief Jochem Heizmann to China Daily, according to Reuters.
 
Volkswagen, whose cars sales in the mainland grew 18.3% to 2 million in the January-September period, will see its annual capacity hit at least 4 million vehicles by 2018, said Heizmann.
 
Meanwhile, the market share of Japanese carmakers, including Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (PINK:NSANY), in October fell 59% compared to a year ago, thanks to the Sino-Japan territorial disputes.
 
Sales might not rebound next year, said analyst Namrita Chow of research firm IHS Automotive.

“Despite dealers offering strong discounts, the overall sales for Japanese brands in China did not fare well in October with Japanese automakers now cutting back further on vehicle production in China in 2013 and possibly into 2014,” Chow told the Financial Times.
 
Twitter: @sterlingwong
No positions in stocks mentioned.

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