China may still be on the road to becoming the most dominant market for all things tech. But this week that journey took a wrong turn and landed many of its leading lights in the ditch.
A string of bad earnings reports confirmed broader fears that China’s bigger economic problems seemed to be at last impacting the tech sector. The country is racing to devalue its currency to reverse a broader economic slowdown, though that move could be a mixed blessing for companies inside and outside the country.
The latest bad news came today, when Beijing-based Lenovo said it was cutting 3,200 jobs after its sales and profits shrank. Its acquisition of Motorola has failed to ignite smartphone sales, and the company is seeing its PC business slow.
The previous day, Alibaba reported earnings that missed expectations. The company said it would spend $4 billion to buy back stock in a move to prop up a share price that has been falling just one year after its blockbuster IPO. Also yesterday, Tencent said growth in its gaming business was slowing.
These problems aren’t limited to companies inside China. Shortly after Lenovo’s announcement, Taiwan’s HTC said it would cut 2,250 jobs as sales of smartphones soften in China.
And, of course, everyone is watching Apple very closely. The company had been investing heavily in that country and has been gaining quite a bit of momentum there. With all that Apple has at stake in China, one analyst downgraded Apple, citing concerns over softening smartphone sales there.
If there is a problem in China, Apple thinks it may just be a short-term bump. Apple said on its most recent earnings call that it has 22 stores in China now, and will have 40 by the middle of next year. And revenue there grew 112 percent in the most recent quarter. With a growing middle class, the company remains upbeat about its prospects there.
Which is probably the right long-term outlook. As it has the world’s largest Internet and smartphone market, there is a sense of inevitability about China’s future when it comes to tech.
The current hiccup would have to get considerably worse to radically change that destiny.
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