Latest / Bloomberg Intelligence / BGC's Gillis: Apple's Dependence on China is Concerning (Audio)

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BGC's Gillis: Apple's Dependence on China is Concerning (Audio) · Bloomberg Intelligence

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  Speaker 1: thank you, Bill, and to hear live breaking news over
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  Speaker 1: You're listening to taking stock with pim Box and Kathleen
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  Speaker 1: Hayes on Bloomberg Radio. Another potential setback for Apple, it
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  Speaker 1: was found today that Apple violated the design patents of
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  Speaker 1: a Chinese device maker and may have to halt sales
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  Speaker 1: of its latest iPhones in they Jing. Uh So. This
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  Speaker 1: also comes on the heels of a Apple Worldwide Developers
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  Speaker 1: conference that many people thought you did some some new developments,
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  Speaker 1: but nothing really earth shattering. Of course, that's what everyone
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  Speaker 1: is looking for the next big thing from Apple. Colin
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  Speaker 1: Gillis joins US now. He's director of Research and senior
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  Speaker 1: technology analysts at v g C Partners based right here
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  Speaker 1: in New York City. Welcome Colin Illo, Kathleen, So, tell
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  Speaker 1: us more about this decision on Apple and patents and
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  Speaker 1: how important is it? All right, So let's let's break
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  Speaker 1: it down into into two pieces. The first one is
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  Speaker 1: the specific case of the iPhone six um, yeah, being
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  Speaker 1: uh possibly banned for sales and in Beijing, right because
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  Speaker 1: of pan infringements. That's likely something that will be overturned,
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  Speaker 1: uh when it climbs up hiring the courts. But it
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  Speaker 1: shows you the problem that Apple faces doing business and
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  Speaker 1: in the market that it's it's the second largest market
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  Speaker 1: for Apple, right. So the first market is the United States.
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  Speaker 1: The second largest market for Apple's China. And this is
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  Speaker 1: a market that you're seeing revenue growth declining on a
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  Speaker 1: year of year basis two quarters in a row. And
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  Speaker 1: this is a risk, right, It's such an important area
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  Speaker 1: for sales for the company. They've got you know, they're
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  Speaker 1: opening up five more stores. You have forties stores total.
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  Speaker 1: And there's always the risk that the government can change
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  Speaker 1: the rules of the playing field, all right, So if
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  Speaker 1: the government changes the rules of the playing field, should
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  Speaker 1: that change someone's bullish call on Apple or should it
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  Speaker 1: change their bearish call on Apple. Well, I think it's
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  Speaker 1: obviously a big negative if that were to happen. And
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  Speaker 1: I think the risks in the market um for Apple
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  Speaker 1: are are high. Right, They're higher risk selling into the
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  Speaker 1: Chinese market then than in the United States. And that's
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  Speaker 1: just you know that, that's a fact. Right. So their
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  Speaker 1: dependency on China for for growth and their dependency on
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  Speaker 1: China for for revenue is something that if you're an
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  Speaker 1: Apple investor, you have to be concerned about. Colin you
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  Speaker 1: know that show. What was your takeaway from the Apple
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  Speaker 1: Worldwide Developers Conference? Yeah, very um evolutionary in incremental, right,
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  Speaker 1: And Apple's got a problem and that they mad smashing success, right,
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  Speaker 1: but driving literally billions of dollars of profits from their
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  Speaker 1: iPhone the revenue and they're gonna have a difficult time
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  Speaker 1: coming up. Would additional revenue streams to augment that when
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  Speaker 1: the smartphone market growth slows down, which is what's happening, right,
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  Speaker 1: It didn't look out when we were talking about China.
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  Speaker 1: The domestic competitors to Apple faces or companies like chow
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  Speaker 1: Mean Walwei, there sps or you know, right, Whawa apples
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  Speaker 1: average selling price. So as prices come down, right, Apple,
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  Speaker 1: to maintain their margin structure, has been losing market share,
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  Speaker 1: and you know that's why we've seen them rolling out
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  Speaker 1: their most recent phone price that you know, four hund dollars,
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  Speaker 1: trying to just to maintain a level of competition at
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  Speaker 1: different price points. But it's you know, the landscape is changing,
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  Speaker 1: all right, landscape is changing. Column. But let's say you're
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  Speaker 1: using your smartphone to order groceries these days, You've got
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  Speaker 1: another competitor that you need to pay attention to, and
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  Speaker 1: that is Amazon dot Com. Turn your attention to the
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  Speaker 1: grocery store battle, and particularly Amazon's entry with the Prime
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  Speaker 1: Now service and the battle against such stalwart retailers as Kroger.
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  Speaker 1: All right, yeah, yeah, yeah, you had another business with
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  Speaker 1: a one percent margin for Amazon to just jump into.
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  Speaker 1: But you know, the reality is is that groceries is
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  Speaker 1: a massive market, right, you know, something you know, six
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  Speaker 1: hundred seven billion dollars. So even though the margins are very,
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  Speaker 1: very slim, right, it's a volume business and that's what
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  Speaker 1: Amazon likes, and it's one of the few verticals that they,
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  Speaker 1: you know, don't have a lot of traction in now.
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  Speaker 1: Groceries are also have their own particular nuances. You need
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  Speaker 1: to have refrigerated trucks, you have to have, uh, you know,
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  Speaker 1: warehouses that are close to to the city. Um, it's
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  Speaker 1: the major metropol in the areas, you know. But you
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  Speaker 1: can see one day, I'm you know, Alexa, you know
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  Speaker 1: I need milk, and bring me milk. I don't know,
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  Speaker 1: I I don't Maybe I'm just so nitpicky about food
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  Speaker 1: and things and I like to look at us. I
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  Speaker 1: don't know, but I have ordered from Jet a couple
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  Speaker 1: of times. Is Jetta threat to Amazon in any way,
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  Speaker 1: shape or form um? You know, there are multiple companies
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  Speaker 1: that you know, have come out and I don't view them,
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  Speaker 1: you know, as a as a meaningful material threat. Uh.
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  Speaker 1: But but the grocery space is going to be interesting, right,
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  Speaker 1: Like I'm an active user of Fresh Tract and once
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  Speaker 1: you get you know, used to ordering your groceries online,
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  Speaker 1: it becomes But how do you know you're gonna get
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  Speaker 1: the best tomato or the avocado with the right right,
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  Speaker 1: miss Colin? So you just have to trust that they're
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  Speaker 1: gonna take care of Okay, will you always take care
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  Speaker 1: of us? Colin Gillis. Thank you so very much. Colin Gillis.
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  Speaker 1: He is an analyst at a b C b g
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  Speaker 1: C Partners, Director of Research and senior technology Analysts. You're
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