Apple Loses Market Share as Chinese Users Prefer iPhone Alternatives
China is becoming a bigger headache for Apple (NASDAQ: AAPL), as Chinese consumers eschew the iPhone for other options.
Last quarter, Chinese consumers preferred Samsung's offerings, helping the Korean electronics maker to take 24.3 percent of the market, over three times Apple's share, according to research firm Gartner. Users are also choosing domestic brands Huawei (SHE: 002502) and ZTE Corp. (SHE: 000063). Huawei has also tried to break into the American smartphone market through vendor MetroPCS (NYSE: PCS) by providing smartphones at a lower cost. With slightly over 9 million subscribers, MetroPCS is not even close to overtaking the market from Verizon (NYSE: VZ) and AT&T (NYSE: T), whose iPhone subsidies hurt both companies in addition to Sprint.
Those subsidies also pointed to greater future revenue and strong sales for Apple, which were revealed when the company beat earnings estimates at the end of January. Since then, shares in Apple are up nearly 20 percent--even after massive profit taking hit the company on Wednesday.
The company is still trading far below analysts' median target of 600, with almost all analysts maintaining an outperform or buy rating on the company.
Apple's future is so bright, in fact, that analysts have begun ignoring it when analyzing American equity markets. The S&P 500 saw earnings grow by 6.6% for Q4 2011, but without Apple, that figure shrinks to just 2.8%. The impact of Apple on the S&P is so great that analysts at UBS, Morgan Stanley, Goldman Sachs, Barclays, and Wells Fargo have begun tracking the S&P without the tech giant because it is too distorting.
This growth is so breathtaking that it has been met with doomsayers, even if it has been sustained for years. Pundits have predicted that the company's exponential growth is threatened by tapped-out consumer markets in the west. In December, slowing sales in Italy, Spain, France, and Germany prompted some to predict a hit to Apple's bottom line thanks to a protracted economic slowdown in the western world. Despite high unemployment, market slowdowns, and a sovereign debt crisis in Europe, that hit never came.
Growth in market share in developing markets has been a healthy tonic for such scepticism, even if it remains a small portion of the company's global sales. Analysts estimate that the company has sold 3 million iPhones in China since 2009. This is peanuts compared to the near billion mobile subscribers in China or the 55 million iPhones sold in the U.S. in 2011 alone. So far, China just hasn't meant that much to Apple's bottom line.
This is why the company's stock did not fall on Thursday's news that the company asked Amazon to ">stop selling the iPad due to an escalating trademark issue involving the iPad brand, although it seems that Apple will win that battle.
Still, analysts and market commentators eyeing China's growing middle calss as a ripe market for sales expansion would like to see Apple conquer China. Such an expansion would help it avoid a slowdown in sales in America. However, Apple has no reason to rush into China. Growth in iPhone sales at home has not slowed down. In fact, the phone is so popular that it may even be cannibalizing sales of Apple's own iPad.
A much more pressing concern for Apple will be distinguishing its products from the growing number of Android phones that aroused Steve Jobs's ire at Google (NYSE: GOOG). Until that hurdle is overcome, expansion into China may be far from the minds of CEO Tim Cook and investors in Apple.
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