Sizing Up Apple’s Chinese Business As Regulatory Issues Mount

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Concerns over Apple’s (NASDAQ:AAPL) Chinese business mounted late last week, after it emerged that the company faced an injunction from a municipal tribunal in May barring the sale of its iPhone 6 and 6 Plus smartphones in Beijing amid allegations that it infringed design patents of Shenzhen Baili, a relatively obscure Chinese smartphone manufacturer. While the injunction has been suspended pending an appeal, the legal issues nevertheless underscore Apple’s growing challenges in the Chinese market, which has been the company’s biggest growth driver in recent years. In April, the company had to shut down its iBooks and iTunes Movie services in the country just a few months after launch, likely due to some issues relating to licenses. Separately, the firm also lost a case to exclusively use the iPhone moniker, after a Beijing court ruled that a small leather accessory maker could use the trademark for some of its products. [1]

It’s unlikely that Apple’s Chinese business will face any kind of existential threat from the recent regulatory issues, given the company’s strong brand presence and its heavy Chinese sourcing and manufacturing activity. That said, there is a possibility that the government could favor home-grown smartphone manufacturers over Apple, at a time when smartphone shipment growth in China is expected to slow (low single-digit growth expected for 2016), while the broader economy also contends with increasing headwinds. Below we take a look at Apple’s exposure to the Chinese market.

AAPL_China_Exposure

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References:

Chinese Shipments: China Smartphone Shipments Hit a Record 438 Million Units in 2015, Strategy Analytics, January 2016


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Notes:
  1. Apple Forced to Share ‘iPhone’ Trademark in China With Leather Accessory Maker, MacRumours, May 2016 []