Europe nothing but a big downer for Apple and Amazon

Apple Earnings Analysis Q4 2012

We’ve gotten hints of the terror that is the current European consumer market from AMD (AMD), Intel (INTC) and other tech companies, but it took Apple (AAPL) and Amazon (AMZN) to really spell out how bad things really are. Amazon delivered a muted third-quarter report and guided Q4 sales more than $1 billion below Wall Street’s consensus. North American sales growth was a decent 33%, but international sales growth dropped to 20% from the 44% pace a year earlier.

Apple provided more direct evidence of the stalling European consumer market in its fiscal fourth-quarter report. It delivered 113% year-on-year sales growth from Japan, 43% growth from North America… and 8% from Europe. Apple’s European sales actually declined by -3% from the spring quarter to autumn quarter. What’s interesting is that Asia-Pacific was nearly as weak as Europe — +15% annualized sales growth and -4% sequential sales decline.

Apple’s numbers seem to support the scenario many fear in the consumer electronics industry: European consumer demand weakened sharply during autumn and Chinese demand cooled down in sympathy as China’s exports to EU stall.

The September back-to-school season in Europe is regarded as an important indicator of coming Christmas demand. If European consumer demand really started slumping seriously during the autumn quarter, gaming the Christmas sales is going to be very tricky indeed. Could the calming debt markets of Spain and Italy lead to consumer mood rebound? Or will the relentless rise in unemployment rates continue dragging down retail sales?

The notable weakness of Apple’s Asia-Pacific performance during autumn is also something to puzzle over. Is it just the Chinese economy cooling down? Or does the phenomenal success of the new Samsung (005930) Android devices play a role here?

For Apple, Asia-Pacific used to be a region of stronger growth than North America. But Asia is now lagging notably after already cooling down during the spring. Allocation of early iPhone 5 shipments could play a role here. But it’s hard to avoid the notion that China Mobile now holds the whip in its hand. The world’s largest mega-carrier and Apple have been circling each other for years, each assuming it has the upper hand in negotiations over iPhone availability.

It is now clear that Apple needs to cut a deal with China Mobile and gain access to its 700 million mobile subscribers. Sooner rather than later. And that -4% sequential revenue decline in Asia-Pacific is no doubt a valuable negotiation chip for China Mobile.

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