The moving parts on this Chinese slowdown boggle the mind. Its tentacles reach pretty much everywhere, whether it be the price Waste Management (WM) gets for its scrap, to the parts Eaton (ETN) makes for its exported electrical systems or the amount of iron ore China can take, or cars Audi can sell -- not as many as of last night's revision -- to the amount of steel it will dump and the slowing amounts of Johnnie Walker it can drink ¿ thanks, Diageo, for that little bit of downer on your call last night.
But nowhere is the confusion greater than in cellphones, where everyone admits there is a slowdown but no one wants to say who it is slowing for and why.
Cellphones are front and center because China is both the marginal maker and the marginal taker of cellphones and because it is in an infrastructure transition from fast to even faster technology, 3G to 4G, and we don't know where the build-out stands.
And, of course, cellphones are front and center because China is where Apple's (AAPL) hyper growth comes from, and Apple has indicated that, despite the slowdown in the economy, despite the crash in the Chinese stock market, despite the gloom we hear from all of the economic indicators, things are going gangbusters.
Now, we should have no reason to doubt Apple ¿ which I hold in the Action Alerts PLUS charity portfolio that I co-manage -- or Tim Cook. We can perhaps suggest that sales have slowed since the quarter last talked about on the call. But we aren't getting that read.
Or we could suggest that it's become very zero-sum, with Apple just crushing its once fast-growing rival, Samsung, taking share faster than we have ever seen -- something that could be corroborated by the discounts that Samsung announced last night on all of its new phones. There was no such discounting for Apple.
But we do know this. Some companies are being hurt, and being hurt badly. We know that Qualcomm (QCOM) had real Chinese issues. The company says they have nothing to do with the manufacturing portion of the business they have in China and much more to do with the loss of Samsung business.
Qualcomm's what I call a squishy story -- stock's down a ton already, lots of cash, big restructuring but no catalyst.
Into this whole opaque mix come NXP Semiconductors (NXPI) and Qorvo (QRVO) which both, last night, reported numbers that didn't hit the mark.
Now NXPI and Qorvo, along with Avago (AVGO) and Skyworks (SWKS), are the companies that have most benefited from the strength in Apple phones. So any time we hear anything negative from any of them, we presume the problems are Apple-related.
Given that Apple won't let anyone talk about its business, the conference calls are always these elaborate kubuki dances about whether Apple's cutting back or not, or is the consumer in general slowing, or are the problems Samsung-specific.
Last night on the Qorvo call, which many will tell you was a disaster, you could sense the confusion. Qorvo portrayed its shortfall as an issue of the big infrastructure transition in China, NOT anything about Apple. But I don't think people want to believe that read-through, as the fates have turned on Apple for now because it didn't blow away the 47 million handset estimate.
Then you throw in the mixed, not disastrous, comments in the release from NXPI about demand and you get the sense that, well, look, it has to be Apple, it can't just not be Apple. But then this morning we come in and people LIKE the NXPI story, which then makes people feel BETTER about Apple and near-field communications payment systems.
Still, the accumulated evidence lets one make the case that it isn't just the infrastructure transition and it isn't just Samsung; it's the actual slowdown, exacerbated by the Chinese bear market, and it is sparing no one, including Apple.
What's the truth here?
I don't think that's the issue. I think the hot money made a bet on cellphones and sales in China both going strong. Now the hot money wants out of that bet, to go buy health care or soft goods or even the oils and potentially the industrials.
In fact, I think I can sum it up justly in three letters: ABC -- anything but cellphones, and when we finally sort out what went wrong, the Chinese stock market, the infrastructure transition, the Samsung dissolution, the too-high cost or saturation of high end handsets -- we will have already bottomed and started going up again.
