CLSA reports strong, resilient demand for iPhones in China at the expense of Huawei, Samsung

Posted:
in iPhone edited January 2016
Hong Kong broker CLSA reports a continued "loyal following" for Apple in China, noting that half of smartphone buyers intend to buy from Apple, compared to slipping interest figures for Huawei, Samsung and Xiaomi.


2015 Opening of West Lake Apple Store in Hangzhou, China. | Source: Apple CEO Tim Cook via Twitter


Overall, smartphone demand in China is reported to be falling. A CLSA survey of 350 middle class consumers in "tier 1 and 2 cities" found that only 25 percent planned to replace their smartphone, a moderate drop from the 29.7 percent who expressed a purchasing intent last quarter. CLSA's findings were reported by Shuli Ren of Barrons.

China's "city tier" rankings are used by industry research groups and government agencies to categorize regions by their affluence, infrastructure development, economic growth and ability to attract development investment. Apple is targeting tier 1 and 2 cities, including , in its buildout of retail stores in mainland China.

However, despite the overall decrease in buying intent, half of those in the study said they planned to buy an iPhone in December, up from 46.7 percent who said the same in September and inline with the 51 percent who planned to buy iPhones in June.

Because demand in the overall smartphone market has decreased, Apple's maintenance of a high ratio of intent indicates that it has actually grown over the last six months, in addition to outperforming the overall market the same way Apple has consistently outperformed the shrinking PC industry in selling an increasing number of Macs.

The increase in the number of buyers who said they planned to buy an iPhone in December compared to last summer is noteworthy given that Apple reported a 100 percent increase in iPhone sales in China in the September quarter.

Continued consumer interest in Apple's brand has increased primarily at the expense of Huawei (down 1.9 percentage points) and Samsung (down 1.1 points). The report also noted a unspecified drop in intent for Xiaomi.

The data also indicated that three quarters of those who planned to buy a new iPhone already owned a smartphone that was less than two years old; 25 percent had bought their existing phone within 2015, and 52 percent had bought a phone in 2014. CLSA analyst David Murphy cited this as evidence of "a loyal following" for Apple in the country.

Despite a troubled economic outlook for China's markets, buyers said on average they'd be willing to pay as much as 6,033 yuan (about $915) for an iPhone, a 22 percent premium over the average price of a new iPhone, cited as being 4,953 yuan ($750).

Interpretation of rumors suffering from surfacing data



CLSA's survey findings support the data reported in parallel by China's Ministry of Industry and Information Technology, which indicated 33 percent growth for "non-Android phones" over the year-ago quarter, reaching roughly 24 million units in the December quarter. Apple's iOS represents 90 percent of the non-Android smartphones sold in China.


Source: MIIT, Stifel


In September, Apple's chief executive Tim Cook noted that the company was on track to exceed its 74.5 million iPhones sold in the previous December quarter. However, since then a series of supply chain rumors have asserted that Apple would cut orders from its suppliers in the March quarter, inciting a panic surrounding the idea that iPhone 6s sales are troubled.

A series of smartphone suppliers have also warned of worse than expected results for the December quarter, but their troubles may likely be linked to another supplier: Samsung, which has itself warned investors to expect poor smartphone performance under increased competitive pressure.

Apple has repeatedly warned that rumors of supply chain cuts do not and can not provide a clear picture into the company's operations. Previous rumors floated by the Wall Street Journal and Nikkei of supposed supplier cuts as large as 50 percent did not result in any observable change in the number of iPhones that were actually sold.

Comments

  • Reply 1 of 14
    A Chomsky-like "self interest" argument for most online media's flagellation of all things Google might well explain the likely western absence of reporting on this, and the doomsaying around anything Apple related.

    Not a conspiracy, it's wildly observable, and obvious.

    'peak iPhone' is the divergence from "market saturation" talk, which turned out to not be a thing for smartphones, despite years of predicting it would be.

    So rather than say (and immediately be called out for it) that iPhone market saturation is being reached, they're saying "peak iPhone" in the vain hope someone will believe this, and read it as a tipping point for Apple.


    Why?

    This is an interesting question.

    Apple's rival controls both an enormous amount of online advertising distribution, and the direction, nature, intent and quality of traffic and interest.

    Media outlets rely on traffic and interest for advertising revenue.

    And Google's value is directly related to their ability to get in front of consumers, and pull data from them, too.
    cornchip
  • Reply 2 of 14
    Cue the statistically-challenged comments starting with "but it's only 350..." (On the assumption, of course, that it was truly a random sample of likely middle class smartphone consumers). 
  • Reply 3 of 14
    normmnormm Posts: 570member
    I was just looking at the Gartner data for second quarter 2015 (I think the rest of the year was similar).  World smartphone sales up 13.5% year over year, Apple iPhone sales up 36% year over year.  Smartphone sales down 4% in China, Apple iPhone sales up 68%.
    JamesBBcornchipbadmonk
  • Reply 4 of 14
    sockrolidsockrolid Posts: 2,788member
    Deeeds said:
    A Chomsky-like "self interest" argument ...

    “If we don't believe in freedom of expression for people we despise, we don't believe in it at all.” 
    - Noam Chomsky

    latifbpcornchip
  • Reply 5 of 14
    lkrupplkrupp Posts: 7,158member
    I’m seeing Dilger’s AI articles starting to show up in financial news aggregators. If, as @sog35 laments, Tim Cook is remaining silent and unresponsive to all the “peak iPhone” negatives at least Dilger is getting some positive news out there.
    latifbpmacky the macky
  • Reply 6 of 14
    I never understood the "smartphone saturation" thing with regards to the iPhone.

    Yes... someday everyone on Earth will own some kind of smartphone.  But even then... not everyone will have an Apple iPhone.  

    Let's say smartphone sales plateau at around 1.5 billion units a year.  Apple only sells 230 million a year right now.  So there's plenty of room for Apple to grow INSIDE a saturated market.

    Isn't this same thing happening in PC sales?  

    PC sales are down... but Apple is growing INSIDE the PC market.
    edited January 2016 fotoformatstardustagcornchip
  • Reply 7 of 14
    bobschlobbobschlob Posts: 1,074member
    Ugh. Every time I'm excited to see a DED article (which I love), I get a couple sentences in, and hit something like this: "Overall, smartphone demand in China is reported to be falling.", and it harshes my buzz, man!   B)
    jfc1138
  • Reply 8 of 14
    I never understood the "smartphone saturation" thing with regards to the iPhone.

    Yes... someday everyone on Earth will own some kind of smartphone.  But even then... not everyone will have an Apple iPhone.  

    Let's say smartphone sales plateau at around 1.5 billion units a year.  Apple only sells 230 million a year right now.  So there's plenty of room for Apple to grow INSIDE a saturated market.

    Isn't this same thing happening in PC sales?  

    PC sales are down... but Apple is growing INSIDE the PC market.
    Yes. That as well.

    And we upgrade phones far more frequently than just about any other technological product. Even faster than beard trimmers and blenders ;)


    cornchip
  • Reply 9 of 14
    If you make a fool of wall st, wall st makes a fool of your stock price. Look what they did to Fit Bit. Apple getting into Forex is a great sign some day they might rewrite the stock market rules, wall st's days are numbered.
  • Reply 10 of 14
    jonljonl Posts: 210member
    The tl/dr version is that a China Ministry (perfectly reliable source, right?) and Hong Kong brokerage house (survey taker, tea leaf reader, market manipulator, right?) have settled the questions about what the numerous supplier bad quarters, guidance, and warnings, AKA "rumors", mean totally in Apple's favor. If you did read it, I hope you realize that a large part of the "100 percent increase in iPhone sales in China in the September quarter" was due to China being included in the iPhone launch weekend for the first time ever, which is something that should have been mentioned. As for the chart, you should compare and contrast the YoY increases for the last 3 quarters of 2014 and 2015 to put the Q4 33% YoY increase in perspective.

    P.S. The parenthesized characterizations represent the pejoratives that would have been hurled had they gone against bullish confirmation bias. If they turn out to be misleading, I hope bulls will laugh when Tim Cook explains you can't take these sorts of reports and surveys too seriously.
  • Reply 11 of 14
    tomhqtomhq Posts: 22member
    But it's only 350... Slap on the margin of error and the story could read very differently
  • Reply 12 of 14
    foggyhillfoggyhill Posts: 4,767member
    tomhq said:
    But it's only 350... Slap on the margin of error and the story could read very differently
    The margin of error is likely 5.1%, so how would it mean something different?
    Come on, don't be coy; put on some argument instead of insinuation.

    In x1-x2, you can answer if one is higher than the other with a sample of 350.
    So, again, what's your god damn point.


  • Reply 13 of 14

    "Frankly, if I were to shut off my Web and shut off the TV and just look at how many customers are coming into our stores … and looking at sales trends, I wouldn’t know there were any economic issues at all in China,” (Tim Cook during earnings call)

    Apple just started selling phones in China, so it would indeed be incredibly unlikely if growth was over already after the first two years... Don't think we have seen that kind of growth curve before.

    Explode -> then whimp...??!! ...Really?

    The segment of middle class consumers are growing steadily and opening their purses for western icons like Apple. According to a McKinsey study the middle class is growing from 50 mio in 2010 ago to 500 mio over the next five years. Just try and relate to that....! That is like adding the entire size of EU to the global population of potential consumers...

    Then someone will say; "...well just look at China's stock market! The economy is falling apart!"

    The domestic Chinese stock market has been (and still is) overvalued since opening up to the public (think IPO'ing an entire country...). At the same time, a significant part of the old chinese economy is still old age heavy industry and they are taking a beating... the Chinese consumer on the other hand is doing very well. Chinese retail sales was up 11.2% YoY in Dec.

    In China, "face" is everything! You get a lot of face by having the latest iPhone model or watch... emphasis "latest". I think we will see some of the fastest upgrade cycles in Asia. Simply because it matters if you have the latest model. In the western world, we are perhaps more practical and can live with a phone that is 2 or even 3 generations behind... that may also change.

    The current Analyst narrative is that upgrade cycles will slow. It may not happen. Upgrade cycles may in fact start to pick up driven by Asia.
    edited January 2016 cornchip
  • Reply 14 of 14
    jfc1138jfc1138 Posts: 3,090member
    Add to ^this^ IIRC only around 7% of the Chinese populace is participating in the stock market: so actual financial impact is very limited.
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