Earlier this week, research firm IDC released a report indicating that, for the first time ever, Apple Inc.’s (NASDAQ:AAPL) iPhone shipments to China have decreased significantly. According to the report, shipments of iPhones to China decreased last year to 44.9 million, a 23.2% decrease from 2015.
Apparently, Chinese smartphone makers, particularly Oppo, Vivo and Huawei, have increased market share in the region by offering “higher-end gadgetry that appeals to consumers seeking Apple-like quality and innovation.”
This has led to an overall decrease in the AAPL market share in China, down to 9.6% from 13.6% in 2015, and a subsequent drop in revenue — Apple’s “fourth consecutive year-over-year dip in the region” — by 11.4%.
This new situation is potentially disconcerting to a number of analysts and investors, as China has presented a fantastic opportunity for growth in years past.
However, due to the challenges faced by American companies attempting to conduct business in China — namely, the Chinese government’s overbearing regulation and frequent demands for controversial app and product modifications — coupled with the “ascendancy of cheaper but just-as-good local alternatives,” sales of the iPhone 7 were less than spectacular.
Some analysts have attributed the reduced demand for the iPhone 7 to a lack of innovation and significantly higher product prices compared to other countries. This is potentially disconcerting for AAPL stock management and investors alike, since “China remains an important market for Apple, as it contributes 20.7% of its revenue and is the location for the bulk its [sic] manufacturing facilities.”
It’s quite possible that AAPL stock will recover in China, and the lull in sales and Chinese-based revenue will reverse when Apple finally reveals its 10th-anniversary edition of the iPhone.
Even considering the recent drop-off in both market share and sales in China, Apple stock is still going strong. According to Strategy Analytics, AAPL earned 91% of global smartphone operating profits in the third quarter.
Bottom Line for AAPL Stock in China
Of the 43 analysts providing recommendations to MarketWatch.com, 33 call Apple stock a buy and 10 call it a hold. The average target price for AAPL stock is $140.57, which represents a potential upside of more than 7% from Tuesday’s per-share closing price of $131.35.
Overall, Apple stock is still one of the best choices for your tech-centered investment portfolio. While the struggle for dominance of market share in China will undoubtedly be a long and bloody battle, AAPL has a history of producing some of the world’s most innovative and compelling products, and this reputation — and expectation from consumers and analysts alike — will ensure Apple stock remains on everybody’s short list.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.