Why tax and regulation issues in Japan affect iPhone sales

Market Realist

Why Apple announced mixed results ahead of its iPhone 6 launch (Part 3 of 6)

(Continued from Part 2)

Traditionally, Japan has been an important market for the iPhone

In the previous part of this series, we discussed how the iPhone is gaining acceptance among enterprises. Here, we’ll discuss how iPhone’s faring in Japan.

Japan has traditionally been a fast-growing market for Apple’s (AAPL) iPhone. According to a survey by BCN Ranking, a Japanese research firm, in February this year, the iPhone 5S captured a 44.5% share in the Japanese smartphone market. Meanwhile, the iPhone 5C captured a 5.9% share. This gave Apple a share of more than 50% in the Japanese smartphone market.

During the company’s conference call to announce fiscal Q3 earnings, Apple’s management said that there were some unforeseen issues in Japan in fiscal Q3. Tax increases and regulatory constraints on carriers were some of the issues in Japan that affected iPhone sales.

Apple continues to dominate Japanese smartphone market

According to the same report from BCN Ranking and as the chart above shows, if we segregate the smartphone players with telecom carriers in Japan, SoftBank (SFTBY) with the iPhone 5S and AU with the iPhone 5S have a share of around 16% each, while NTT DoCoMo (DCM) with the iPhone 5S  has a share of about 12%. NTT DoCoMo with Sony (SNE) Xperia comes next, at about 2% market share.

If Apple continue to dominate the Japanese smartphone market, it will benefit ETFs like the Shares U.S. Technology ETF (IYW) and the Technology Select Sector SPDR (XLK), which have high exposure to Apple.

Unforeseen issues in Japan affected iPhone sales

Apple mentioned two issues that impacted the overall smartphone market in Japan: “VAT was increased from 5% to 8% close to the beginning of the quarter. I think it was actually April 1 or so. That was the first planned VAT increase. There are other or at least one additional planned VAT increase in the future. This was a part of the overall tax reform package in Japan. Secondly, the carriers received some guidance from the regulators to essentially stop incenting people to transfer from another carrier at a higher amount than they were incenting their — retaining their own customers.”

Continue to Part 4

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