US>China
May 24th, 2020
Smartphones
Here’s a little mini tale which captures several interesting economic stories all in one place. It’s based around the experience of a popular listed smartphone company, which was by chance the first stock we researched for Sharpfokus Saham starting a year ago. This tale covers the effects of government regulations & a current hot topic, the US v China choice.
Regulations
Around 2014 as smartphones took off in Indonesia, the Indonesian government decided to make a regulation, requiring an amount of local content. The companies reacted differently. Samsung had local factories while Apple shelved plans for an expansion here & didn’t launch new devices for a couple of years. Not surprisingly, Samsung then dominated the market. But the Chinese were coming.
Here’s a little mini tale which captures several interesting economic stories all in one place. It’s based around the experience of a popular listed smartphone company, which was by chance the first stock we researched for Sharpfokus Saham starting a year ago. This tale covers the effects of government regulations & a current hot topic, the US v China choice.
Regulations
Around 2014 as smartphones took off in Indonesia, the Indonesian government decided to make a regulation, requiring an amount of local content. The companies reacted differently. Samsung had local factories while Apple shelved plans for an expansion here & didn’t launch new devices for a couple of years. Not surprisingly, Samsung then dominated the market. But the Chinese were coming.
China ⬆️ Profitability ⬇️ ➡️ US ⬆️ profitability ⬆️
China
A Chinese smartphone maker did a deal with this listed local retailer. The deal was a way around the regulations. The local retailer imported lots of parts & assembled then here. This didn’t work out well. A large inventory built up, funded by short term debt. Manufacturing suffered delays & by the time the phones were sold, they lost value.
US
For this listed retailer, Chinese brand sales had surged, to become by far the highest, 2x Samsung, whose sales became flat. Apple sales declined 50%. The financial result was profits collapsed. But it appears a lesson has been learnt. Suddenly in the 1Q, the US producer is back. Apple sales tripled to more than 2x the Chinese brand which fell 50%.
Profit
The financial impact of this switch back is positive. The inventory is gone & most of the debt which was raised to buy it has been paid. Most significantly the Apple sales look like they’re much better as the 1Q cash cost ratio has fallen significantly. The result of the switch from China to US is likely much improved profits
A Chinese smartphone maker did a deal with this listed local retailer. The deal was a way around the regulations. The local retailer imported lots of parts & assembled then here. This didn’t work out well. A large inventory built up, funded by short term debt. Manufacturing suffered delays & by the time the phones were sold, they lost value.
US
For this listed retailer, Chinese brand sales had surged, to become by far the highest, 2x Samsung, whose sales became flat. Apple sales declined 50%. The financial result was profits collapsed. But it appears a lesson has been learnt. Suddenly in the 1Q, the US producer is back. Apple sales tripled to more than 2x the Chinese brand which fell 50%.
Profit
The financial impact of this switch back is positive. The inventory is gone & most of the debt which was raised to buy it has been paid. Most significantly the Apple sales look like they’re much better as the 1Q cash cost ratio has fallen significantly. The result of the switch from China to US is likely much improved profits
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