“Units sold outside the top five markets have grown the last three quarters,” UBS analysts Steven Milunovich and Benjamin Wilson wrote in a new report. “We view this as a sign that Apple remains an aspirational brand and can increase its penetration in smaller markets.”
The analysts drew on Gartner’s smartphone shipping data through December to assess Apple’s performance in the premium smartphone market, which was also stellar in major markets like the US, Europe, and Japan. But there’s one crucial market where sales growth has eluded Apple– China.
Apple’s Decline in China
“Apple achieved its highest market share in four years in the US, Europe, Japan, and RoW,” Milunovich and Wilson noted. “The exception was China, where share was down 17 points YoY as units fell 19%.”
Much of Apple’s poor performance in the region can be pinpointed to Taiwan and Hong Kong, where its market share plummeted by a whopping 50%. Apple performed better in mainland China, where its market share dropped 5 percent. However, Apple still faces stiff resistance there from native competitors like Vivo, Oppo, and Huawei, who have claimed a combined 45 percent of the market. While the Chinese smartphone market grew 9 percent, the iPhone’s share declined by 19 percent.
In its 10-Q, Apple reported that its net sales in China had fallen 12 percent in the first quarter of fiscal 2017. It blamed its struggles in China on “lower net sales of iPhone and the effect of weakness in foreign currencies relative to the U.S. dollar.”
High iPhone 8 Demand
Apple’s fortunes in China may be due for a reversal later this year, when the highly anticipated iPhone 8 is due to launch, hopefully igniting a strong upgrade cycle. A recent survey by Loup Ventures found that demand for the upcoming Apple flagship, also known as the iPhone X, is high, with 23% of iPhone owners intending to upgrade.
“While it’s still early, interest in upgrading to the iPhone X appears to be meaningfully higher than upgrade interest was for the iPhone 7,” Loup Managing Partner Gene Munster wrote in a blog post.
Top Apple analyst Ming-Chi Kuo, of KGI Securities, also expressed confidence in the iPhone 8. In an investor note circulated over the weekend, Kuo stated that sales of the iPhone 8 could outpace those of the Galaxy S8 this year, because the upcoming Samsung smartphone lacks “sufficiently attractive selling points”.
He projected Galaxy S8 sales of 40 to 45 million units in 2017, which is weaker than Galaxy S7’s shipments of 52 million in 2016.