Realist, not conformist analysis of the latest financial, business and political news

To Think That China, The Land Of Bling, Turns Against Apple’s iPhone Veblen Goods

Apple’s iPhone shipments fell rather drastically in China this last quarter – not really what we’d expect from a place getting as rich as fast as China is. The nouveaux riche are never really known for the delicacy and refinement with which they proclaim that change in economic status so it’s a bit of a surprise to see Veblen Goods like the iPhone being so rejected. But then that’s also the problem with such positioning in the marketplace. If it is the brand, the fashion, which sustains the sales then, well, fashion does change.

The fall in sales is substantial:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Apple’s iPhone shipments fell 19.9 percent during the fourth quarter in China, according to the latest figures from research firm IDC published Monday. This was reflected in Apple’s earnings release last month, when it said it booked $13 billion in revenue from China during the quarter, down 27 percent from the year-ago quarter. Overall, Apple said iPhone revenue fell 15 percent. [/perfectpullquote]

If this was the China of a decade or two back no one would care very much but the place is now one of the largest markets upon Earth such has been economic growth there these recent years.

Others are gaining:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Apple reported a 19.9 per cent decline in shipments in China in the fourth quarter, but climbed one place to No 4 in smartphone shipments after Xiaomi did even worse, tumbling 34.9 per cent during the same period, according to a report by research firm IDC published on Monday. Overall industry shipments for China fell 9.7 per cent to 103 million units.[/perfectpullquote]

Those relative positions are changing yet the overall market is shrinking.

All of which tells us two things. Firstly, the great penetration of the smartphone into China is pretty much over. There’s a period in which no one has a new technology, then increasingly more do, then all who will have. After that we’re in a market for replacements, rather than there being some new virgin market to conquer. A useful guess is that China is now in this last and third stage.

There’s still good profit to be made of course, it’s just not that landgrab it was before.

The second is that Apple itself is having a harder time of it than some others. Apple often being what economists know as a Veblen Good. That is, one that’s desirable because it is expensive, ownership showing that the owner is rich enough to have this expensive item. It’s a great position to be in but it is one that has a problem. The public is fickle and what is defined as Veblen depends just upon passing whims and fancies.

Which leads to a second conclusion, Apple’s iPhone has lost that privileged position in China. Neither of these two conclusions are set in stone as yet but that’s what it looks like from here.

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