Tech Tent: Tim Cook's bombshell

Chinese person and iPhone Image copyright AFP

It is a company that is always tight-lipped about its finances between its quarterly results, so Wednesday's letter from Tim Cook warning Apple investors that the outlook had suddenly darkened was a bombshell which rocked the market.

On this week's Tech Tent we explore whether Apple's chief executive was right to blame a slowdown in the Chinese economy for its problems or whether there are wider issues with the iPhone, the product which turned it into a trillion dollar company.

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In the view of Shanghai-based Shaun Rein, Tim Cook is right to blame China. The founder of the China Market Research Group tells us he is very worried about the state of the Chinese economy: "It's the absolute worst I've seen in the 20 years I've been in China. Everything has really stalled in the last quarter."

And he says that fall in consumer confidence, coupled with the growing trade war with the United States, has made people more nationalistic about the phones they buy.

"There's a lot of pride in buying Chinese products made by Chinese for Chinese. After the United States got Canada to arrest the CFO of Huawei that caused a lot of Chinese to be angry. And so a lot of Chinese consumers in a show of patriotism are saying let's not buy Apple let's buy Huawei and show support for the Chinese state."

Even if those trade tensions ease, it is hard to see Chinese phone buyers turning back to Apple in large numbers now the spell has been broken.

Last summer Huawei overtook Apple to claim second place behind Samsung in global smartphone sales, With its latest iPhone launches in the autumn, the American giant was expected to climb back above its Chinese rival, but that now looks less likely.

Part of the reason is an issue that is damaging Apple not just in China but around the world - the price of an iPhone. The latest model the XS breaches the $1,000 (£768) mark - even the supposedly budget version the XR costs substantially more than a top-of-the-range Huawei phone.

Image copyright Reuters
Image caption The arrest of Huawei CFO Meng Wanzhou angered many Chinese people

Last August, Apple's ability to defy gravity and achieve an ever higher average selling price for its phones was one of the factors that drove its share price higher, pushing it to that trillion dollar valuation.

But suddenly there are signs of a consumer revolt. Our man in Silicon Valley Dave Lee tells us of an unusual sight at an Apple Store in the US - a discount offer on the iPhone XR.

On Black Friday in the UK a couple of retailers were offering such good deals on the same phone that it was hard to believe that Apple - usually the hardest of hardball negotiators - had not offered them a wholesale discount.

Let's not exaggerate Apple's problem - Tim Cook's letter said it was still on track to make record profits and the iPhone still accounts for the vast majority of the profits of the whole phone industry.

But the idea was that as iPhone profits eased back they would be replaced by revenues from services - Apple Music, cloud storage and so on. That process may now have to be accelerated.

Also on this week's podcast

  • Have you made a New Year's resolution to cut down on screen time? We look at tools to help with that and ask whether the likes of Google and Apple really are interested in helping us spend less time on our phones.
  • With CES opening in Las Vegas next week we have a sneak preview of some of the gadgets which could steal the headlines at the biggest tech show on earth. Expect Japanese robots with no function except to make you love them.
  • Stream the latest Tech Tent podcast

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