Apple Inc. (NASDAQ:AAPL), Samsung (SSNLF) coming face to face with the curse of depending on China
If China is your most important market as it is to Apple Inc. (NASDAQ:AAPL)’s and SAMSUNG ELECTRONIC KRW5000(OTCMKTS:SSNLF)’s mobile businesses, you lose sleep amid these grim economic predictions. China’s economy is not only projected to grow at the slowest pace in 26 years in 2016, but the smartphone market in the country is highly saturated That is happening at a time when Apple and Samsung are increasingly looking to China for growth as their other key smartphone markets hit peak penetration levels.
The World Bank is predicting that China’s economy will only expand 6.7% this year, marking the slowest growth of the Chinese economy in nearly 26 years. That doesn’t look bad enough until you discover that China’s smartphone market contracted 4% in the last quarter of 2015 and the trend is likely to continue throughout this year. With that, you see why Apple and Samsung are feeling the heat of looking to China for growth.
Headache for Apple
Apple Inc. (NASDAQ:AAPL)’s iPhones target the high-end smartphone market. The economic slowdown such as the case in China threatens to put a squeeze on consumers’ discretionary spending, thus slowing down iPhone sales in the country.
Apple is already worrying about the threat considering that the company draws a significant portion of its revenues and profits from China. With the threat looming large in China and other key markets reaching smartphone saturation levels, Apple expects its sales to fall for the first time in 13 years. Signs of a grim future showed more clearly in Apple’s most recent quarter when iPhone sales growth remained nearly flat and Apple missed the consensus iPhone unit sales estimate.
Apple Inc. (NASDAQ:AAPL) is looking for revenue of $50 to $53 billion for the current quarter, indicating a drop from $58 billion in a similar quarter a year ago. The soft revenue forecast takes into account the economic rout in China.
Samsung is facing multiple challenges in China. First, the economic slowdown in the cloud threatens consumers spending, which might have a heavy toll on vendors of premium smartphones. Second, competition has increased in China’s smartphone market and competitors have seriously eaten into Samsung’s market share in the country.
For Samsung, China has become a nightmare these days, although it used be a lucrative market for Galaxy phones.
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