Apple Inc. (AAPL) Stock Can’t Rely on Any Real Help From China

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After years of only achieving minimal traction in the country, Apple Inc. (NASDAQ:AAPL) finally appears to be making headway in India … a market that sports 1.3 billion consumers who collectively spend $13.9 billion on smartphones, most of which aren’t (yet) iPhones. Better still for owners of AAPL stock, India is in the midst of entering its next era of consumerism, with GDP growth rates persistently around 7%. Spending power is on the rise for a wide swath of its population, two-thirds of which are under the age of 35. That’s Apple’s prime demographic.

Apple AAPL stock

It couldn’t be happening at a more fortuitous time either. See, while Apple is doing well enough in North America and Europe, it continues to slip in China … a market once hailed as the company’s panacea. Though some onlookers are confident the company can turn things around there too, few can afford to be too hopeful.

Function Over Label at Apple

While Apple’s fiscal second quarter (calendar Q1) report divulged some key details about how the company was faring in China, and elsewhere, it wasn’t a complete look at the situation. Namely, the company’s quarterly filings don’t compare it to other smartphone makers.

IDC has crunched the numbers, however, and they’re not great.

Technology market research outfit IDC estimates that Apple’s market share slumped from 11% in the fourth quarter of 2016 to only 9.2% in the first quarter of this year. That makes it the country’s fourth-biggest player for the all-important smartphone market.

Apple’s loss was Huawei’s gain. Ditto for Samsung Electronics (OTCMKTS:SSNLF), in China and everywhere else too. After an embarrassing string of exploding Galaxy Note 7’s forced the company to recall all of them last year — taking a huge toll on its results and market share — it reclaimed its market share lead during the first quarter of 2017.

Sales in China are a key part of that recovery. Huawei gained global market share in Q1 as well.

The shifting market share has, or at least should have, AAPL stock holders asking questions, not the least of which is what these other manufacturers are doing that’s so compelling.

Oppenheimer analyst Andrew Uerkwitz believes he has his finger on the pulse of this shift, explaining after talking with smartphone makers in China and Taiwan:

“There was general consensus among our conversations that confirms our thesis that Apple’s dwindling market share in Greater China is due to the lack of compelling differentiation among hardware and software. The mobile user experience in China is heavily dictated by Tencent (OTCMKTS:TCEHY) and other local internet companies, making Apple’s software and services ineffective as key differentiators.”

Had Uerkwitz been the only party to make the observation, it might have been dismissible. He wasn’t the only one. Anshul Gupta, research director at technology market research outfit Gartner recently echoed the idea, suggesting, “The top three Chinese smartphone manufacturers are driving sales with their competitively priced, high quality smartphones equipped with innovative features.”

It’s rhetoric that has been touched on before, largely reflecting the cultural differences between the eastern and western hemispheres.

In North America (and Europe, though to a slightly lesser degree) owning an iPhone is a status symbol. Though it is an amazingly functional devices, it’s more to be seen by others than to serve a purpose.

In China as well as in most eastern cultures, status symbols matter, but they largely view their consumer technologies through a purpose-colored lens. That is to say, they’re more apt to see them as a tool to get things done rather than a toy. That’s why lower-end phones that are just as functional as an iPhone do well in China. Digital payments and travel arrangements are commonly facilitated on smartphones in China, among other things. They happen in the U.S. too, though not nearly as frequently.

Looking Ahead for AAPL Stock

Still, Apple’s hardly dead in the water in China. Last quarter’s slowdown in iPhone sales was a tough comparison, unfortunately timed relative to the release of the iPhone 7 and the impending release of the iPhone 8.

Uerkwitz added to his analysis:

“… we do believe there is pent-up demand for iPhone 8, which is widely reported to make a few major design changes. We expect a temporary rebound in (Apple’s China smartphone market) share.”

Somehow though, it’s difficult for owners of AAPL stock to not be concerned. Uerkwitz even conceded that he sees any iPhone 8-driven turnaround in China as a temporary phenomenon, pointing out its model that works so well in the United States hasn’t established the same kind of strong consumer loyalty there.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/apple-inc-aapl-stock-real-help-china/.

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