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China: Apple Drops Out of Smartphone Top 5; Starbucks Coffee Called a "Woman's Drink"

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MSN and Lenovo also make the news.

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MINYANVILLE ORIGINAL China's once-a-decade Communist Party leadership transition began this week, with president and party secretary Hu Jintao expected to hand over the reins to vice-president Xi Jinping, with vice-premier Li Keqiang expected to take over for Wen Jiabao. It is however still unclear who, ultimately, the nine members of the ruling elite Politburo Standing Committee would be.

In his opening address of the 18th Party Congress, Hu addressed the corruption issues, notably the case of disgraced Chongqing party secretary Bo Xilai, that have plagued China this year.

"Combating corruption and promoting political integrity, which is a major political issue of great concern to the people, is a clear-cut and long-term political commitment of the party. If we fail to handle this issue well, it could prove fatal to the party, and even cause the collapse of the party and the fall of the state," Hu cautioned, according to Bloomberg. "Leading officials at all levels, especially high-ranking officials, must readily observe the code of conduct on clean governance. They should both exercise strict self-discipline and strengthen education and supervision over their families and their staff, and they should never seek any privilege."

Hu also set a new economic growth goal for China. "On the basis of making China's development much more balanced, coordinated, and sustainable, we should double its 2010 GDP and per capita income for both urban and rural residents [by 2020]," he said. China's per capita income for city dwellers stands at 21,810 yuan ($3,493), with that of those in the countryside being 6,977 yuan ($1,118).

Data from October suggested that China's economy was picking up speed once again after two years of sluggish growth. Industrial production increased 9.6% on a year-to-year basis last month, compared to a 9.2% gain in September. Third-quarter GDP growth came in at 7.4%, with analysts forecasting an increase in the current quarter to close to 8%.

Here is the rest of this week's business headlines:
Apple (NSADAQ:AAPL): After coming in as the second-ranked smartphone company in China in the first quarter and fifth in the second quarter, Apple fell out of the top-5 list for the first time in the third quarter.

Samsung (PINK:SSNLF) retained its pole position, with 14% of the smartphone market, while Lenovo was second with 13%, according to a report from research firm Canalys. Yulong Computer Telecommunication Scientific, which sells 'Coolpad'-branded smartphones, was the new entrant at third, with Chinese telecom giants ZTE (SHE:000063) and Huawei (SHE:002502) occupying the fourth and fifth positions.

At sixth with an 8% share was Apple, whose smartphone shipments did grow year-to-year. The company, which has yet to release its new iPhone 5 in its second-largest market in the world, was outdone by rival firms who offered options at the lower-end of the market.

"[The Chinese vendors] are selling their devices at a very low price that can attract first-time smartphone users," Canalys analyst Nicole Peng told Computer World. "Apple's iPhone is still very expensive and it kind of limits their expansion in the country, when the target audience of where the growth is coming from is at the low-end."

With the iPhone 5 expected to launch in the mainland, with China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) carrying the device, Apple will surely rocket its way back up to the top of the leader board in the next quarter, however.

Lenovo: While Lenovo performed solidly in the smartphone market, its third-quarter PC sales performance was even more outstanding. The company posted a record $8.7 billion in sales, which was an 11% year-to-year increase. It earned $162 million, or $0.1.6 per share, in the process.

"Our global PC market share reached another historic high, moving us closer to our dream of becoming the worldwide PC leader," Lenovo chairman Yang Yuanqing said in a statement, adding that emerging markets outside China have hit "the profitable growth stage," which bodes well for future earnings.

Lenovo is, of course, in a fierce tussle with Hewlett-Packard (NYSE:HPQ) for the title of the world's top PC seller. Last month, research Firm Gartner crowned Lenovo as the PC king, citing last quarter's sales figures. IDC, however, still had HP as the top of its rankings.

Microsoft (NASDAQ:MSFT): While the rest of the world will lose access to Microsoft's Windows Live Messenger, or MSN, as it is more commonly known, in the first quarter of 2013 as it is being retired and replaced by Skype, netizens of China can have their cake and eat it too, as they will still be able to use both MSN and Skype.

ZD Net explains that "while Microsoft owns Messenger and Skype, the two services are offered via joint ventures with local Chinese companies. Any plans to merge the two offerings and retire Messenger from China might complicate the structure of both companies."

In statement, Microsoft said it will continue to improve both MSN and Skype services, which compete with domestic rivals from Sina (NASDAQ:SINA) and Tencent (HKG:0700), in China so users can have "different" experiences.

"As the era of multi-screen has arrived, we conform to the trend by revamping our business strategy," MSN China general manager Anderson Liu, said.

Starbucks (NASDAQ:SBUX): Is coffee considered a woman's drink in China? Apparently so, according to a government employee interviewed by AdAge China. The publication studied Starbuck's efforts to cultivate a coffee culture and how it has had to make adjustments to cater to locals, whose beverage of choice is traditionally tea.
"I think coffee is more of a woman's drink, don't you?" [Government employee] Mr. Fu asked. "If you were doing business with a woman then maybe you could bring her to a coffeehouse. But if you were doing business with a man ... you go to a restaurant and talk business over a meal or you go to karaoke and make deals while you sing together. The idea of men talking business in a place like Starbucks ... I think that's just ridiculous."

One thing AdAge pointed out was crucial to ensure Starbucks' success in China was to educate consumers about coffee culture.
Consumer education is essential. Starbucks' target consumers are urbanites interested in international experiences, and they're curious enough about coffee to spend $5 on a drink when an average office worker's salary is about $1,000 a month. Baristas are trained to teach consumers about the products, and stores regularly host coffee seminars.

Twitter: @sterlingwong
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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