China yuan devaluation 2015

Weaker yuan could be great for Chinese smartphone brands like ZTE even as it hurts Apple

PUBLISHED : Wednesday, 12 August, 2015, 2:02pm
UPDATED : Wednesday, 12 August, 2015, 2:02pm

China's move to devalue the yuan may harm foreign brands targeting Chinese consumers, but could be a boon for domestic smartphone makers looking for overseas growth.

The People's Bank of China pushed the yuan down nearly 2 per cent against the US dollar on Tuesday, the biggest drop in more than 20 years. The bank followed this with a further decrease on Wednesday.

The move sent stock in Apple falling as analysts expressed concern that it could cause iPhone prices to rise in China, one of the US firm's key markets.

A weaker yuan may prove beneficial for China's domestic smartphone brands however.

"[Devaluing the yuan] will reduce our exchange loss and promote our export business," ZTE global spokesman David Dai told the South China Morning Post.

In 2014, ZTE suffered 590 million yuan (US$91.8 million) in exchanges losses, or almost 17 per cent of the company's total profit. That amount may fall if the yuan continues to be devalued.

Chinese companies will also benefit if the weaker yuan forces foreign smartphone brands to lower prices or risk market share.

While Xiaomi recently regained its position as China's top smartphone maker, Apple dominates the higher end of the market, with prices far above that of domestic brands. Research firm IDC said in April that the iPhone 6 had pulled up the average selling price of smartphones in China by around 35 per cent.

In a research note this week, Essence Securities said that the yuan devaluation could have several benefits for Chinese manufacturers that export to overseas markets. Their products can be priced lower, they will suffer less exchange loss, and overseas revenue will be higher calculated against the yuan.

ZTE generate around 50 per cent of its revenues from overseas in 2014. Other Chinese smartphone makers, including Lenovo, Huawei and start-up OnePlus, also primarily target foreign consumers.