Apple Inc. (AAPL) Starting To Struggle In China As iPhone 7 Demand Could Rise

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Now that Apple Inc. (NASDAQ:AAPL)’s September quarter earnings results have been released, Wall Street chatter returns to the iPhone 7 as analysts consider whether the company will see a return to unit growth in fiscal 2017. A fresh survey of nearly 6,500 consumers in five countries suggests that it’s possible, although China is beginning to look like a serious trouble spot for Apple Inc. (NASDAQ:AAPL).

iPhone 7 could trigger a return to growth

UBS analyst Steven Milunovich released the results of his firm’s study in a report dated Oct. 31. Based the results of the extensive study, demand for the iPhone 7 appears to be somewhere between the iPhone 6 and 6s. A particularly bright area for Apple Inc. (NASDAQ:AAPL) is that almost half of the survey participants in the U.S. are either very or somewhat likely to buy and iPhone 7. The analyst adds that this is even higher than then numbers for the iPhone 6 two years ago, meaning significant potential for this year’s model.

He believes that carrier promotions in the U.S. could be driving this increase in the U.S., as interest in the iPhone 7 in the U.K. only grew modestly from 29% last year with the iPhone 6s to 33% this year.

China becoming a stumbling block for Apple

Also interest in China declined yet again with the iPhone 7, as the percentage of Chinese who were “very” or “somewhat” likely to buy the newest model slipped to 43% this year. Last year for the iPhone 6s, the metric stood at 54%, while for the iPhone 6 two years ago, 64% of the Chinese participants wanted to buy one.

Apple iPhone 7

Milunovich warns that China adds downside risk to Apple Inc. (NASDAQ:AAPL) in fiscal 2017 as domestic smartphone brands continue to pressure the U.S.-based company’s pricey iPhone. The analyst is estimating a 5% unit decline in China for fiscal 2017, compared to a 15% decline in fiscal 2016. In order for Apple Inc. (NASDAQ:AAPL) to meet his expectation for a 6% global unit growth in fiscal 2017, a 5% decline in China requires a 10% increase in the U.S., Europe and Japan, he adds.

iPhone 7 Plus demand outpacing iPhone 6s Plus

The analyst also reports that U.S. consumers appear to be shifting toward the Plus-sized model with a nine-point increase over the 6s. His firm’s survey showed that 43% of those who plan to buy an iPhone soon are expecting to get the iPhone 7 Plus. By comparison, only 34% expected to buy the iPhone 6s Plus last year.


Apple Inc. (NASDAQ:AAPL) management expects the average selling price for the iPhone during the December quarter to be about the same as last year around $690. Milunovich notes that this is a significant increase from the $619 recorded in the September quarter and is in spite of the less expensive iPhone SE’s popularity. He explains that this offers further support for a mix shift toward the iPhone 7 Plus but adds that the supply constraint could weigh on this.

Unsurprisingly, Apple Inc. (NASDAQ:AAPL) buyers are more interested in design and less in price. The UBS survey indicates that the company’s customers are especially demanding when it comes to features they see as being the most important.


Milunovich believes that picky customers help protect the iPhone maker from competition, “especially when the company is able to bend the demand curve up by lifting customer expectations and prevent disruption by ‘good enough’ rivals.”

Shares of Apple Inc. (NASDAQ:AAPL) stock declined by as much as 1.97% to $111.29 during regular trading hours on Tuesday.

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