China’s recent state-sponsored anti-Apple campaign according to one estimate cost Apple $13 billion in sales in the country. Citi’s Glen Yeung recently examined the financial impact of previous Chinese state-sponsored campaigns against other companies.
China's recent state-sponsored, anti-Apple campaign might not just be empty rhetoric: it could, according to one estimate, cost Apple $13 billion in sales in the country. China’s government has instituted similar pushes against YUM Brands (part of KFC), Toshiba, and Hewlett-Packard. For those of you unfamiliar with it, the negative press led to YUM Brands taking a 20% year-over-year sales hit in China for January and February, while Toshiba lost its number one spot in Chinese notebook sales following a 1999 state-media report that the Japanese manufacturer treated Chinese and American customers differently. Yueng chose HP as a template for the potential damage of such a campaign to Apple, stating the following:
Recall that a similar campaign hit HP in 2010, leading to a ~50% reduction in their PC share in China. Apple derives ~16% of its sales in China (CY12) and China accounted for ~24% of Apple's revenue growth in the past 2 years (2010-2012). If Apple were to lose as much as 50% of their China market share, this would equate to ~$13.1B/$3.62 in revenues/EPS. We add this to our list of concerns about Apple's market share dominance and still do not recommend the shares at this time.
China just surpassed the U.S. as the largest market for smartphones and tablets and Apple has been trying to make its products more affordable in that increasingly important market. Apple CEO Tim Cook issued an apology for the Chinese warranty issues that appear to have sparked the Apple backlash, even while the effectiveness of the campaign remains unknown. Cook ended up blaming the “misunderstandings” stemming from Apple’s lack of public communications and offered the company’s “sincere apologies.” His letter also came with four major adjustments to Apple’s warranty policy in China. These changes included increased supervision and training for Apple Authorized Service providers, a new feedback system, a “concise and clear” statement on its website about repair and warranty policies, and new policies for the iPhone 4 and iPhone 4S.
Source: CNN via AppleInsider