A piece posted earlier today at Bloomberg News points out that Apple’s Q2 numbers saw a sharp drop in Chinese IPad sales from 49% to 28%. Given that China is Apple’s second largest market after the United States, one can imagine there have probably been a lot tough questions flying back and forth between Beijing and Cupertino over the past several weeks . . .
My initial reaction to the news was that this simply makes sense due to the PRC’s recent overall economic contraction. Surprisingly, however, although China’s “slowing” has likely played a real role in Apple’s relative decline, it seems two other factors may have been even more significant: (1) Samsung has firmly established itself at second place with 11% of the Chinese tablet market; and (2) Even more striking is what looks to be the sudden emergence of smaller indigenous (and low cost) Chinese tablet manufacturers – a phenomenon that has created unprecedented fragmentation throughout the sector.
As one analyst put it: “’Apple has lost its luster in China in the past six months and is no longer the must-have product in any category,’” said Shaun Rein, managing director of China Market Research Group in Shanghai. “’Consumers are more price-sensitive. Before, people would skip lunch to buy an iPad. Consumers are more price-sensitive. Before, people would skip lunch to buy an iPad.’”
My evolved perspective, therefore, is that this is really more of a “China story” than an “Apple story.” In other words, we’re seeing real evidence of China’s consumer electronics industry transitioning from a “construction/consumption phase” (with the notable exception of Lenovo) into a genuine “creation/distribution phase.” Of course, it’s far too early early to know whether China’s smaller manufacturers will eventually gain sufficient strength to sell their lower cost products on a global scale. But if nothing else, this at least has all the appearances of a new type of Chinese economy that is becoming increasingly capable at responding to an economic downturn through capitalist innovation. In other words, we may well remember this moment as a genuine tipping point: One that won’t necessarily affect US, Korean, EU or Japanese markets in the near term but could absolutely do so much faster than a majority of tech analysts have been predicting.
Seeking Alpha has also been following developments closely.