A Bernstein Research analyst, Toni Sacchonaghi, released a report describing that while Apple Inc. (NASDAQ:AAPL) faces plenty of opportunity with the iPhone in China, he sees some short term hurdles that could give Apple Inc. (NASDAQ:AAPL) less sales than estimated. Sacchonaghi estimates that iPhone sales will decline by 1.5 million units in China this quarter.
As reported on Barron’s, the Bernstein analyst backs up his thesis with saying that the inventory build up, slowing of the Chinese economy, slowing demand after China Telecom Corporation Limited (NYSE:CHA) got the phone back in March.
Despite thinking Apple Inc. (NASDAQ:AAPL) will report a decline of 1.5 million iPhones this quarter, Sacconaghi has yet to officially change the estimates for this quarter; which stands at $37.11 billion in revenue on $10.53 per share. Wall Street currently has estimates at $37.61 billion in revenue on $10.36 per share.
From an overall viewpoint, Sacconaghi believes the iPhone will only achieve 10% to 15% in the Chinese smartphone market. This is sharply lower than the average consensus of 24% control of the Chinese market.
“We say, “well, how many users are coming into affordability for the iPhone.” It’s about 55 million a year for the next five years. We do the math and we think that over the next five or six years there could be another 30 million iPhone sales just from people kind of growing into affordability of the iPhone and riding that smartphone penetration curve” says Sacconaghi.
Apple will face much success in China, no doubt. If they were able to come out with a more economical phone, I think their success in China would be much higher. The reason being is that China loves Apple products but, as a whole, can not afford Apple type prices. That is why cheaper phones have been selling with much more success lately. Economic conditions are deteriorating in the country which does make it hard for the average worker to be able to afford a $250-300 phone.
In addition, Apple faces strong competition from rivals such as Samsung and the resurging Lenovo. Recently, Lenovo has seen their sales up over 40% as the PC maker has gotten smaller and able to charge lower prices than rivals such as Hewlett-Packard Company (NYSE:HPQ).
However, Apple Inc. (NASDAQ:AAPL)’s recently newly unveiled Macbooks with retina display should surely be a hit in the country. Not to mention, the very successful iPad could help sales if Apple is eligible to sell the product in the country.
The bottom line here is that while Apple Inc. (NASDAQ:AAPL) does face some unfavorable headwinds in the country, the underlying story remains intact. Bernstein’s Toni Sacconaghi sees some headwinds for the iPhone but that all seems to have a very short time horizon that Apple should easily be able to get through without taking a massive hit. Additionally, Apple looks to spice up sales for its other products such as the new line of Macbooks and possibly the iPad. Over the long haul, Apple still has much success left in China.
Disclosure: No positions