The issue here is entirely around Apple and China.
Sounds to me that it isn't just China. The new phones are even more expensive then the previous ones. It's kind of hard to imagine that those high prices have no impact on sales and I would have at least expected there to be a mention about pricing in the letter.
They don’t break it down.
In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.
https://www.google.com/amp/s/observer.com/2018/12/tesla-chin...
And even non-tech luxury brands
https://www.google.com/amp/s/www.wsj.com/amp/articles/luxury...
You could swap out Apple with pretty much anything and you'll be accurate. The person commenting on the internet all day isn't representative of the average person.
You can boost that several orders of magnitude when it comes to this site, too.
I'm sure if you included the effective subsidies China-homed conglomerates enjoy, the ratio of COGS between e.g. Apple and Huawei could be as high as 4:1. Huawei can certainly afford to make phones cost 1/4th as much, although Apple could also afford to cut prices by 38 percentage points (as per their margins).
On the other hand, China-homed companies aren't responsible to public markets (Wall Street really) in the same way US-homed are. You could book a 1% margin, but your family owns the company, so the board isn't going to take away your private jet, let alone dump you as CEO.
In the US, the "family owned" (in the sense of being management controlled) mega-techs like Facebook and Snapchat are actually suffering greatly due to their poor accountability. It's truly bad for equities, even while Facebook and Snapchat book ever-growing revenues.
It will be an interesting reckoning. Not the change in consumer tastes in China, mind you, which doesn't really matter for share prices. It'll be an inevitable change in corporate culture.
After all, there are millions of extraordinarily talented people in China who will want the kinds of riches and glamor only a certain privileged minority get to experience. If the bottom line doesn't motivate public accountability, ambition will. That's healthy for everyone, but it will signal the end of sclerotic, state sponsored corporations in China.
So as always, the Chinese consumer is the victim. They get to enjoy phones that cost 1/4th as much as an iPhone. But in exchange, they forfeit a certain kind of life fulfillment that, in my opinion, they deserve.
Me sitting in Toronto saying, "iPhone is too expensive for me, I have a mortgage to pay" is still irrelevant, because Apple is hitting its targets in Canada, the US, and so forth. Maybe it is too expensive for me personally (I'm on an iPhone but it's a 6, not a 6s, not a 7, not an 8, not an X of any kind), but I don't speak for my economic zone.
I don't know all of the details, but I recall working with something like that twenty-five years ago, and usually there are a lot of tax breaks and so forth, because most of what's getting manufactured is exported. Jobs stay, products go.
So if you then sell those products in the same country, they want some of the taxes and and so forth.
The alternative would be to charge all the taxes, then manufacturers would file paperwork to get a refund for the goods they exported.
This system streamlines that for the case where the intent is to export more than is sold domestically.
But more than 50% of iPhone value is Chinese made.
Materials, labour, machine time, big part of ICs, batteries, passives, cabling, etc.
So, China actually double taxes own manufacturers aside from Apple itself.
The meme that "only $20" of iPhones value stays in China" is completely wrong. China makes tons of money from Apple.
Oh very much so. That's why China is careful about starting a trade war with Apple. They want to get their own manufacturers up to speed to replace Apple, but they don't want to just kick Apple out of China in one stroke and penalize the Chinese businesses that depend upon Apple.
If it wasn't for that, Apple and their strong privacy approach would be Persona Non Grata, IM-uninformed-O.
Apple tries to be less public about them having HUUGE R&D and business units in China with lots of things being done here.
In 2016 they posted a tiny press release about them opening their "first" R&D centre in China in Shenzhen, and deliberately making an impression of it having no significant role.
In reality, it was their _third_ RnD centre in Shenzhen only. Besides their nominal "design centre" in Kerry plaza, they rent a whole building in Discovery park in Nanshan, and have own section in Foxconn campus. The rumor is that they also rent yet another office for their product/project management staff somewhere closer to Longhua.
If some portion of the phone is imported, and that portion has duties, under normal circumstances Apple's subcontractor would import that thing, pay the duty on it, then export the phone and file for the duties to be refunded.
If the phone stays in China, the duty applies. So there may be duties involved if there are materials imported to China for assembly.
Apple was the first foreign company to price their computers and phones reasonably in China. Before the markup was around 50%, after Apple opened its first Apple stores in China that markup fell to 10-20%, which is about inline with tariffs.