China Watch: Top Business News From the World's Second Largest
) reported its quarterly financial results this week and among the
chief concerns was slowing growth in China, the world's largest
market for computers and mobile devices.
During the fiscal second quarter, Apple sales in China jumped 11%
to a record $8.8 billion. However, the growth rate was
significantly lower than the 67% rate of growth achieved in the
A large part of the slowdown can be attributed to the maturation of
the high-end smartphone market, which Apple dominates. In China,
the new mobile growth arena is in middle- and lower-end
smartphones, where local firms like
(SHE:000063) hope to dominate.
Apple, meanwhile, has to weigh whether or not it should introduce a
less expensive iPhone for China, which would allow it to capture at
least some of that burgeoning lower-end growth, but which could
also potentially cheapen its brand.
An Apple store in Shanghai
Apple CEO Tim Cook was optimistic about continued growth in China.
Speaking on an earnings call, he said that Apple will double the
number of retail sales points in the mainland in the next two
years. He also added the low-cost iPhone 4 was a hit in China.
"We've seen significant interest in iPhone 4 there, and we recently
made it even more affordable to make it even more attractive to
first-time buyers," said Cook, according to
Of course, Apple still has one more major untapped source of
Chinese growth: a deal with China's largest carrier,
), which would allow Apple to access the carrier's more than 700
million subscribers. Most analysts expect the two companies to
reach a carriage deal by the end of this year.
"Going forward we still see a significant opportunity in China,"
said Cook. "It's a great market."
Here is the week's other business news from China:
Is Huawei Giving Up on the US Market?
Earlier in the week, it was
that Chinese networking and telecommunications equipment giant
Huawei Technologies, a fierce rival of
) had decided to abandon its plans to conquer conquer the US
"We are not interested in the US market any more," Eric Xu, the
company's executive vice president, was quoted as saying at
Huawei's annual analyst summit on Tuesday. Huawei has faced a tough
time in the US, with its ventures having been repeated blocked by
the US government over fears that the company, alleged to have
close ties with the Chinese government, is a threat to national
However, on Thursday, Huawei quickly doused such reports, with
company spokesperson Scott Sykes saying: "Mr. Xu's statement
reflects the realities of our carrier network business in the US.
The growth of Huawei's carrier network business is primarily from
developed markets in other parts of the world. Considering the
situation our company currently faces in the US, it would be very
difficult for the US market to become a primary revenue source or a
key growth area for our carrier network business in the foreseeable
future. In spite of this challenge, our US employees remain
committed to providing quality services for our customers."
In an interview with
, another source close to Huawei added that Huawei still has plans
to enter the US market, but that it was focused more on growing
other markets like Europe and Asia.
"Without a doubt they will continue to do business in America, but
Huawei's main markets are in Asia and Europe, amongst others. In
fact, the Asia-Pacific Region and Europe accounts for about 60% of
Huawei's annual revenue mix in 2012, and those regions achieved
healthy growth in 2012."
China Sales Drag Down Yum Earnings
As expected, sales of
) restaurants plunged in the first three months of 2013, due to the
lingering effects of a food safety scare in China from late last
year. Yum reported better-than-expected first-quarter earnings this
week, with net income falling to $337 million, or $0.72 per share,
from $458 million, or $0.96 per share, a year ago.
Same-store sales in China fell 20% in the first quarter, with a 24%
decline in KFC thanks to the food safety scare and a 2% decline at
Pizza Hut. With the new avian flu outbreak in China, Yum also
warned that sales in China would take time to recover. The company
still plans to open 700 new restaurants in the mainland, however.
"Historically, the sales impact of Avian flu publicity has
initially been dramatic at KFC, but relatively short-lived," said
YUM CEO David Novak in a statement.
Luxury Brands Falling Out of Favor in China?
The economic slowdown in China is hitting luxury brands hard.
(PPRUF), which owns brands like Gucci, Saint Laurent, and Bottega
Veneta, said that growth in China so far this year has been slower
compared with last year.
"In China, there is less enthusiasm to buy luxury goods, perhaps
because of concern over the economic situation and the political
environment," said PPR chief financial officer Jean-Marc Duplaix in
a call this week.
In the first quarter, sales of Gucci, the second-biggest luxury
LVMH's Louis Vuitton
(LVMUY), rose almost 10% in China, an impressive figure -- except
when compared with the 15% rate of growth notched a year ago.
"We do not see any signs of a pick-up in China," Duplaix added.
"We're still waiting for a rebound in consumption in China. Perhaps
it will be more in the second half."
According to the
South China Morning Post
, luxury watchmakers have also confirmed that they've experienced a
sales slowdown in China.
One high-end fashion house that is bucking the trend is
Wall Street Journal
reported that Burberry's top market in the last two quarters was