Broken China: Apple is the least of it

A supplier of motors that make the iPhone vibrate is getting rattled by manufacturers up and down its product line.

From Wolf Richter’s Bottom Suddenly Falls Out of Demand in China in Many Sectors. posted Saturday on Wolf Street.

“I’ve been a manager for almost half a century, but this is the first time I’ve seen such a large single-month drop in orders for us,” said Nidec CEO Shigenobu Nagamori. “What we witnessed in November and December was just extraordinary.

Nidec, a Japanese company with $14 billion in revenues last year, makes a wide range of electric motors, from tiny devices that make the iPhone vibrate to industrial motors. It’s the world’s largest manufacturer of motors for disk drives. For the automotive industry, it makes things like engine and transmission oil pumps, coolant pumps, control valves, and fans and blowers. It makes motors for industrial robots, etc…

Nidec’s debacle in November and December isn’t based on smartphones, where there had been a slew of warnings from Apple and Samsung on down, with Apple warning two weeks ago that it “did not foresee the magnitude of the economic deceleration.”

Components for smartphones aren’t a large part of Nidec’s revenues.  Instead, the company is getting rattled by manufacturers in the automotive sector, the home-appliance sector, and other sectors. So this is far broader than just smartphones…

The situation with the suddenly weakening demand in China has now transcended company-specific issues, such as Apple’s new generation of iPhones being too expensive or a sudden reluctance by Chinese consumers to buy American brands.

It has spread to the industrial sector that is supplying Chinese consumers with all kinds of Chinese-branded products, including electronics, cars, and appliances. This situation has deteriorated over the past few months at whirlwind speed, taking these companies by surprise, and creating deeply worrisome signals for the Chinese economy going forward.

My take: Yet somehow Apple’s shares seem to have borne the brunt.

10 Comments

  1. Gregg Thurman said:
    If, I say if, this is the result of the existing and pending US tariffs (I think it is), then I say the trade dispute with China will be over soon.

    To keep China’s expansionist geopolitical goals moving forward it demands a strong economy. Problem is that China has built an economy based on predatory practices (institutional theft of IP) and trade agreements it doesn’t honor, to keep the cash following.

    The US is still the 800lb gorilla in the world trade system. Someday that may not be true, but for now China has taken a lesson in the consequences of trying to force a change in that leadership using strong arm tactics.

    1
    January 20, 2019
  2. Dan Scropos said:
    The (brilliant) tariffs set forth by the Trump administration have quickly slowed China’s economy. China needed this. Some estimates put their IP theft at $200 billion per year, much of that at the expense of the U.S. Enough is enough.

    This should all be over by March 2nd. China can’t bluff too much longer. Without a resolution, punitive US duty rates on $200 billion in Chinese goods are due to rise to 25 percent from 10 percent on March 2. That is something China cannot allow to happen.

    1
    January 20, 2019
    • John Konopka said:
      China buying agricultural products from other countries will hurt the US also. Moreover, after the trade war is over there is no indication that they will return to buying from the US. This could be a serious problem for big ag business in the US.

      0
      January 21, 2019
  3. Gregg Thurman said:
    Not to mention the longer term effects of manufacturers shifting their Chinese production to other Countries in Southeast Asia.

    My guess is that Apple expanding production in India to other, newer models of the iPhone, is partly a hedge against future political conflicts in China. China’s heyday as the world’s go to manufacturer has been severely blunted, along with the economic power to shape the world’s economy that goes with it.

    1
    January 20, 2019
  4. Gregg Thurman said:
    Along with increased production in India might there be some government concessions to Apple (debilitating import duties on crucial manufacturing components) thereby reducing the cost of iPhones and by extension increasing Apple product sales?

    0
    January 20, 2019
  5. Turley Muller said:
    China just released its GDP numbers. Slowest pace in 28 years. It’s widely agreed China overstates its growth too. Looks like we are in for a doozy.

    0
    January 21, 2019
  6. Rick Raphael said:
    Yesterday I asked an associate of mine in China for her take on the points discussed in Wolf’s article. Here is her reply:

    “From what I see and feel around me, people are not cutting spending for cars, appliances, luxury goods. And because the Lunar new year holiday is ahead of us, people will spend more money on gifts for the month long holiday.

    However our economy has been effected by the US threats of tariffs. Because of the trade war many small factories have been forced to close. The USA market always be a huge market for our exporting business. But things seem to be a little better than in December.

    For the Apple phone, at this moment in China, iPhones are not popular. We have so many different domestic cell phone brands we can choose from and their prices are like 1/3 or 1/2 compared to iPhone with almost the same functions. Also the US did have strict limits on the sales of the Huawei phone in USA market. This really bothers some Chinese people.

    I think it’s all about the trade war between USA and China. If the trade war ends, maybe it’s good for sales of Apple products.”

    0
    January 21, 2019
    • “For the Apple phone, at this moment in China, iPhones are not popular. We have so many different domestic cell phone brands we can choose from and their prices are like 1/3 or 1/2 compared to iPhone with almost the same functions. Also the US did have strict limits on the sales of the Huawei phone in USA market. This really bothers some Chinese people.”

      Sounds right.

      0
      January 21, 2019
      • Jim Fournier said:
        “We have so many different domestic cell phone brands we can choose from and their prices are like 1/3 or 1/2 compared to iPhone with almost the same functions.”

        Take out the word “domestic,” and how is this different from the US and most other countries? iPhones are never the most popular, but the buyers are very loyal.

        0
        January 22, 2019

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