Apple's woes – not its gadgets – overshadow tech's big show

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While some attend CES to see game-changing advances like the original Xbox in 2001, the Palm Pre phone in 2009, and 3-D and 4K TVs in more recent years, the real noise is made in backroom meetings among major companies and suppliers of the potentially next big thing.

Many key suppliers are based in China and may have a harder time securing deals this year, as trade tensions flare and companies in the US seek to avoid tariffs imposed by President Donald Trump’s administration or do business with partners viewed as a national security threat.

AvatarMind's iPal companion robots were displayed at last year's event.

AvatarMind’s iPal companion robots were displayed at last year’s event.Credit:AP

“The health of the Chinese economy and the U.S. economy is an overhang for the show,” said Gary Shapiro, the president and chief executive officer of the Consumer Technology Association, which produces the annual trade show.

Still, he said, “there will be discussions with Chinese companies on the buyer-and-seller relationship behind closed doors.”

Some of the CTA’s members with business in China have already adjusted and moved manufacturing and sourcing out of the country, Shapiro added.

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The CTA has organised a panel dedicated to tariffs and the show floor will have a booth for US attendees to contact the US Trade Representative and the White House and explain how tariffs have affected their businesses.

Apple on Wednesday cut its revenue outlook for the first time in almost two decades, citing weaker demand in China because of the country’s slowing economy and rising trade tensions with the U.S.

A big question is how much of Apple’s problems can be blamed on China’s economy versus Chinese consumers’ preference for home-grown brands.

The falloff in demand for iPhones is at least partly explained by its high price and the rise of cheaper, more comparable rival devices in the world’s largest market.

The iPhone XS Max, the current top of the iPhone range, starts at 9599 yuan ($ A1964) in China. Flagship phones from Huawei Technologies and Oppo cost from 4000 to 5000 yuan.

This has been dark days for Apple and for the tech industry. I think there’s a lot of questions in regards to the smartphone industry.

Analyst Daniel Ives

“It’s going to be the elephant in the room at CES,” said Daniel Ives, an analyst at Wedbush Securities.

“This has been dark days for Apple and for the tech industry. I think there’s a lot of questions in regards to the smartphone industry going forward, especially with what Apple said about with demand in China.”

Huawei supplanted Apple as the world’s number two  smartphone brand in 2018 and remains the market leader in China, comprising 25 per cent of smartphone shipments in the third quarter of 2018, according to data from research firm Canalys.

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Chinese smartphone makers Vivo, Oppo and Xiaomi were right behind Huawei, with Apple in fifth place for share of shipments.

Huawei in particular has become flashpoint in the U.S. trade dispute. The U.S. has said the company poses a national security threat due to its close ties to the Chinese government and that Huawei violated a trade embargo against Iran.

Canadian officials, acting at the behest of the U.S., arrested Huawei’s CFO last month.

The arrest contributed to Apple’s brand damage in China, with some Chinese companies reportedly subsidizing employees to buy Huawei devices. Huawei recently demoted and cut the pay of two employees for tweeting from the company’s official account with an iPhone.

“As Trump has locked horns with China, there are social media campaigns on WeChat and Weibo asking people to boycott Apple’s products,” said Loup Ventures managing director Gene Munster. “They can be powerful.”

At last year’s show, Huawei was set to reveal that it would bring a flagship smartphone to American carriers including AT&T. But the deal never happened.

At the urging of the US government, the carriers cut ties with Huawei due to national security concerns, hurting the phone maker’s ability to grow its business in the US.

Richard Yu, chief executive officer of Huawei’s consumer products division, gave a keynote address at last year’s CES.

He used some of his speech to lambast US carriers for deciding not to sell Huawei’s latest phones.

This year, Huawei is an exhibitor at the conference and will be showcasing its new tablet and laptop for the US market.

Huawei's Richard Yu gave a strong speech last year.

Huawei’s Richard Yu gave a strong speech last year.Credit:Reuters

Apple will just send employees to monitor upstarts and potential future suppliers. Its main domestic rivals, Alphabet Inc.’s Google and Amazon.com Inc. will be present at CES, however, with plenty of accessory makers integrating their respective voice assistants.

Microsoft Corp. will also be on hand to discuss how hardware makers can implement their latest software.

Chinese companies will attend the gathering in force. The CTA said it has seen growth in the presence of large Chinese companies and the exhibit area for Chinese companies represents a similar amount of square footage space as last year, around 13 to 14 per cent.

There are more than 1200 Chinese companies exhibiting at the show, and companies in attendance include Alibaba Group Holding, Tencent Holdings, JD.com, car manufacturer BYTON, TCL Corp., and Hisense.

The trade show also reflects the importance of 5G, or fifth-generation wireless technology, in the worsening trade war.

The coming faster networks will be a topic of conversations and panels at the trade show, with a slew of sessions dedicated to applications as both countries race to become a leader in the technology.

While China is poised to have a strong variety of 5G devices on its networks across 2019, Apple won’t release a 5G phone until 2020.

Chetan Sharma, a consultant for the mobile industry who is scheduled to moderate a CES panel on 5G, said the rollout is marching ahead despite trade tensions.

He said he’s heard “nervous chatter in the background” about the trade war, but doesn’t expect to see any direct impact at CES.

“There’s a battle royale for 5G, and you can’t say 5G without Huawei in the same sentence,” Ives said.

“It’s become more important for US and Chinese executives to better understand the trends, dialogue, opportunities and challenges going forward.”

Bloomberg

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