Apple Inc. (NASDAQ:AAPL) may be losing some of the smartphone market share to low cost Chinese smartphone makers, but that won’t last, according to analysts at Raymond James. They believe that next year the market will begin to shift back toward high end smartphones, once again shifting the advantage to Apple and its chief competitor Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930).
Apple’s market share losses just an “illusion”
Raymond James analysts Tavis C. McCourt and Daniel Toomey issued a research note to investors explaining why they don’t think all is lost for Apple Inc. (NASDAQ:AAPL) . They said that although overall smartphone growth will end up being around 43 percent year over year just like last year, most of that growth is skewed toward China.
As a result, companies like Apple Inc. (NASDAQ:AAPL) which have a greater weighting toward the U.S., Western Europe and Japan, appear to be losing market share because they aren’t growing as fast as the overall market. But in their view, “there is no such thing as the global smartphone market.” They note that every country and region as different dynamics.
Smartphone growth in China to continue?
China’s smartphone market has been the main focus for analysts this year, and for good reason. But they said this trend will change very fast. The analysts expect that 2014 and 2015 will bring a meaningful slowdown in the Chinese smartphone market. In the second quarter of this year, they note that 72 percent of the handsets sold in China were smartphones, which is about the same percentage as in the North American, Western European and Japanese markets.
They also point out that while it took about five years for the developed world to shift from 10 percent of handsets sold being smartphones to 72 percent, China has done this in just seven quarters. As a result, they said there just isn’t a lot of room left for smartphone sales to grow in China, so growth is going to slow down there. For next year, they’re forecasting just 10 to 20 percent smartphone growth in China, compared to their 78 percent projection for this year.
Apple to benefit from increasing average selling prices
Another area of concern for Apple Inc. (NASDAQ:AAPL) investors is falling average selling prices for its smartphones. This year there is an undeniable shift toward low end smartphones, which has apparently increased demand for Apple’s older and less expensive handsets. However, the analysts don’t think this is a permanent change. They said as China rolls out LTE, smartphone sales will shift toward the high end of the market.
China Mobile is planning to launch LTE commercially in the first quarter of next year, while China Unicom and China Telecom will launch it later that year. As such, Apple Inc. (NASDAQ:AAPL) and other Western handset vendors will benefit “disproportionately” because their handsets support LTE. This in turn will help push average selling prices higher and shift the advantage back toward Apple and other high end smartphone makers.