Will Apple Be Able To Bounce Back In The Chinese Smartphone Market?

UBS analyst Steven Milunovich reiterated a Buy rating for Apple Inc. (NASDAQ: AAPL) with a price target of $170 after publishing research on the company’s Chinese market.

The analyst sees China as the swing factor in whether Apple can achieve the 15 percent iPhone unit increase UBS predicts for fiscal 2018.

The results from UBS’ semi-annual Global Smart-phone Survey were mixed. Although Apple has seen some branding gains, near-term intentions by consumers cannot be pinned down. Here are some of the findings’ pros and cons:

Pros

• Apple has a leading retention rate of 82 percent, 15 points above Samsung Electronic (OTC: SSNLF).
• Retention in China has improved from 56 percent in the last survey to 77 percent.
• Although slightly down from the last year, over 50 percent of Chinese respondents were “very likely” or “somewhat” likely to buy an iPhone 8.
• Consumers indicated a willingness to pay more for their next smartphone.

Cons

• Consumers are less certain to buy a new phone or upgrade to the iPhone 8 in the next year.
• While interest in the iPhone 8 compared to the iPhone 7 is up in the United States, interest in Europe and Japan is soft.
• A new OLED screen on the iPhone 8 is expected to cost $70, leading to a price increase of $100–$130 compared to the iPhone 7.

Outlook

Overall, Milunovich believes double-digit iPhone unit growth in fiscal 2018 remains likely, citing a “sufficiently conservative” demand model.

Future sales will also be impacted by any complementary products and software unveiled at Apple’s Worldwide Developers Conference Monday.

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In other news, Pacific Crest's Andy Hargreaves became an outlier among analysts by downgrading Apple to Sector Weight on Monday. Shares were trading lower on the surprise.

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