Taiwanese component makers looking at 10m iPad sales

Some Taiwanese component makers who are supplying Apple say the company has ordered enough parts for  10m units of the iPad over the coming year.  If  correct, these numbers suggest that there is plenty of room for upside surprises in Apple's results. Over the last month estimates for  iPad shipments have been edging up. The initial estimate was for around 4m units, but more recently Goldman has published a 6m number and some other analysts are forecasting 8m units.

The other area where Apple could beat forecasts is with sales into Asia.  In the company's last reported numbers, Asian sales were remarkably strong. Sales to both Taiwan and Japan had increased several fold and more recently, sales of the iPhone into South Korea have exploded. Apple has always struggled in Asia, but by the fourth quarter last year the region was contributing 20% of profits - double what it represented a year earlier.

I have just returned from a 9 trip to Singapore and Hong Kong and iPhones can be seen everywhere. Only a year ago you seldom saw any Apple products across Asia.  In Hong Kong, I counted four Apple resellers in the Central region, compared to one 18 months ago when I last visited the island. A leading phone retailer in Singapore told me that smartphones now represent 70% of handset sales in the city state, with the iPhone being far and away the market leader.

Message from Beijing

I have just had an interesting chat with someone I know who has just moved from Taipei to Beijing. He is English but has, after a ten year stint in Taiwan, learnt Mandarin Chinese. His overall impression of Beijing is that there isn't much for the wealthy Chinese to spend their money on.

In America the rich, and certainly the super rich, can buy a ranch in Wyoming, or a Condo in Florida; maybe a town house in New York, or San Fran. They can dabble in art, wine, private equity and of course, stocks and shares.

By contrast, the rich Chinese have limited options. The property market is tight and by common consent is a bubble and  most of the cities have little to commend them.  There are few opportunities for private equity. They can certainly buy local art, which is becoming popular in the West and the Chinese are developing a taste for expensive wines. They have a penchant for mixing their vintage cabinet sauvignon with coco cola. I'm sure the French growers don't mind, as long as they are paid.

The point is, from a western perspective Asia and other emerging markets look like the place to be. However, if you are rich and live there then the West, and in particular, America is still the place with the most opportunity.

Besides, the brutal truth is that much of Asia is pretty un pleasant. Hong Kong is a beautiful and vibrant city but there isn't much of interest culture wise. Like most of Asia, Hong Kong finance types with little interest in creating a rich culture. Seoul is awful and the locals can be difficult. However, you at least see some interesting experimentation in clothes and films, such as Old Boy, demonstrate a streak of brilliance you don't find elsewhere in Asia, with the exception of Japan.

Taipei is a bomb site - there has been very little investment over the years, though you can find great Sushi. Singapore is clean and works but it has as much get up and go as a supermarket check out. You would be hard pressed to find a more spookily soulless place on earth. The high point - fish head curry on Race Track road. There is an underlying atmosphere of hysteria in Singapore that is really quite unsettling.

Off to Singapore to night so best not say anymore. In Hong Kong over the week end.

Apple and the future of publishing

We wanted shock and awe, instead we got shock and confusion. What to make of the launch of the iPad? The first rule for the folks who live at Infinite Loop, Cupertino, is that great products create their own market. Second, Steve Jobs actually knows quite a bit about publishing and print. With that in mind we shouldn't get too fixated on the iPad as a Kindle killer.


When it comes to divining the the future of publishing  activate the link. It will take you through to a fascinating mock up of what an e-magazine or e-newspaper could  look like. Think National Geographic, Life - um maybe Playboy - with high quality graphics, some of which mutate into speaking videos when you click on them. This is surely the kind of thing that someone would watch on the iTab. The Kindle is better suited for long reading sessions, but the iTab still has great potential  in the publishing arena.


As for its prospects in other markets, we will have to wait and see what the Apps  Community make of it. My guess is that the ITab will take off slowly but will then build considerable momentum a year or more out. Video traffic, which is already growing at 130 compound, according to Cisco is the real market for this device. I think a number of vertical markets, such as medical, could also run with the iTab.


The really big news out of Apple this week though has to be the astonishing breakthrough the company has made in Asia. Asia as a per centage of profits, doubled to 20%. Sales in Taiwan and Japan were up several fold and in China, 200,000 legal iPhones have been activated. I say legal because several hundred thousand have been smuggled into the country. China Unicom confirms that 70% of those buying an iPhone are switching to 3G. 


To put that number in context, the iPhone sells for $1000 dollars in China, a country were per capita income is around $3,400. Furthermore, you cannot use WiFi on the official iPhone, though you can if you smuggle one in. The new official number for 3G users in China is 13m. That could double this year. Chinese operators are a accident prone as their Western cousins. 3G wont be big there unless they embrace a device like the iPHone. Apple growth in Asia will be the single most important event of the coming year.


A few days after Apple announced, LG Electronics published a 70% drop in mobile profits. I think we have seen the high water mark for Asian handset makers. It used to be possible to travel the length and breadth of Asia without seeing an Apple product but that is now changing. Asian handset makers compete on hardware design, but that doesn't count for much in the Smart Paradigm. Apple can now fight on its own terms - applications and content. Asian handset makers and Nokia will struggle to equal the richness of the Apps Store. I wonder what Good Night Vienna is in Mandarin

A review of Stephen Roach's new book on China

In the first nine months of this year $126 bn of speculative money flowed into China, inflating the stock market and other asset prices. This sum is the excess in the nation’s reserves, after you deduct $327 bn in trade surplus and $64 bn in direct foreign investment. The market is voting with its wallet, it might like China’s economy but it loves the prospects of its currency even more.

The market’s view of the dollar and the renminbi gets to the heart of the issue, China and America are mirror images of each other. One saves while the other spends, one likes to invest in the future whereas the other doesn’t. The manner in which both countries’ are trying to stimulate their two economies in the wake of the financial crisis is a case in point. In the US, 15% of the funds are being spent developing carbon neutral technologies, whereas in China the figure is 85%. China is having a good financial crisis, as its stock market suggests. By contrast underperformance has become a long term trend in America. Despite the current rise, American stocks have had a miserable decade.

Tragedies always end in a death while comedies end in a marriage. When reading Stephen Roach’s recently published collection of essays, The Next Asia, there is a suspicion that one is witnessing that uniquely modern amalgam of the two, a tragicomedy in which China and America are the co-leads.

The most disturbing essay in the book relates to Roach’s appearance before the House of Representatives. In his written testimony, Morgan Stanley’s chief economist, and now the chairman of its Asian operations, attempts to explain why protectionism would be a disaster for America’s interests. Cheap goods from China and assertions that the currency is undervalued are not the key to the problem, Roach tells Congress. Placing tariffs on imports from China would be like squeezing a balloon, the problem would simply manifest itself somewhere else. Furthermore, in the wake of the financial crisis America is even more dependent on China’s investment in American bonds, so why antagonize your banker?

In his introduction Roach mentions the three mega-trends that animate our world: globalization, the IT revolution and the fact that an ageing population will require pensions. The last of these is a problem that the first two ought to have helped solve. Both globalization and the IT revolution have led to disinflation and increases in productivity. However, both these prizes have been squandered.

For twenty five years, US consumption represented 67% of GDP but, come this decade, that number surged to 72% at the peak. This rise in consumption had little to do with increasing salaries and as we now know, more to do with rising stock and house prices. Roach estimates that over the course of the last expansion, which lasted 69 months, private sector compensation, which he describes as the broadest measure of earned labor income in the US, increased by just 17% in inflation adjusted terms. This meant that it fell $480bn short of the 28% increase that occurred over the previous four business cycles. The US Bureau of Labor statistics estimates that median, inflation adjusted wages, have risen by a cumulative total of 0.9% over the seven years ending in 2007. As Roach points out, this meagre rise seems at odds with economic theory. With rather less hyperbole than John Ralston Saul, in The Collapse of Globalism, Roach has come to the same conclusion: the world’s largest submerging economy, America, is becoming just as polarized as emerging economies like China. Globalization is not working for the average American.

The imbalance will be magnified if America reverts to tariffs - the American consumer, that $10 trillion locomotive that has always pulled the World out of previous slumps, will be derailed if the protectionists on Capitol Hill have their way.

No one could be that stupid though, could they? They can in a tragicomedy. In an essay written in 2007 he estimated that the probability of America becoming more formally protectionist was 60%. He then warned that there was a disconnect between the financial markets, which seem oblivious to the risks and the direction of debate both in the Senate and Congress.

Yet while Roach is critical of his own country he hasn’t been dazzled by China. The hot money might be flowing into Shanghai property, or the Chinese stock market, but Roach fears he might be watching another slow motion train wreck. Tallyrand said of Napoleon that it was the qualities that made him great that finally caused of his downfall, you suspect the same might be true of China. The country’s response to the financial crisis is to do what it always does - invest in infrastructure. China loves fixed assets and exports, they represent more than 80% of GDP. About half the exports go to the developed countries, where consumption is fragile and the returns on fixed asset investment are falling.Between 2000 and 2008 $1.50 of credit resulted in a $1 gain in GDP, but by the first half of this year $7 of credit was required to add $1 to GDP. As China’s Premier, Wen Jiabao said in 2007, China’s economy was increasingly: “unbalanced, unstable, uncoordinated and unsustainable.” China needs less bricks and more credit cards, it needs soft infrastructure.

Warnings like these do not seem to impress investors much, which brings us to the most poignant lesson in Roach’s book. Economics does a decent job identifying the problems, where it fails miserably, is in the timing of the outcome. This tragicomedy, therefore, probably has a good more time to run.