Good News and Bad News for Apple in China

The much-anticipated shift to smartphones from feature phones in 2013 appears to be on track, according to the latest data from Gartner. The expectation that smartphones would, for the first time, outsell other handsets didn't quite happen in Q1, but the trend is clear to see. Last year in Q1, smartphones accounted for just 34.8% of the global mobile phone market. This year, smartphone sales jumped to over 49% of the overall mobile phone market in the first quarter, and Apple (NASDAQ: AAPL  ) enjoyed an increase in market share; up to 9% in Q1 of 2013 from 7.8% in the year-ago period.

In spite of difficulties securing deals with Asian wireless companies, much of Apple's market share growth was due to a great first quarter in China -- that's the good news. Unfortunately for Apple shareholders, as we move into Q2 and beyond, the picture isn't quite as rosy.

The numbers
To no one's surprise, Samsung dominated the worldwide mobile phone market in Q1. With over 100 million units sold, and nearly 65 million of those smartphones, Samsung continues to pull away from the pack. Though Gartner's not sold on Samsung's Galaxy S4, calling it "more of an evolution than a truly revolutionary device compared to the S3," they do expect it will continue to drive sales growth in 2013.

As for Apple, the decline in global feature phone sales is a positive since it's steadfastly refused to enter the low-end feature phone market. And with nearly 7 million iPhones sold in the rapidly growing Chinese market in Q1, it would seem Apple's future is looking good. But after further review, the second and third quarters of 2013 could be challenging for Apple.

The hurdles
When does selling 7 million phones in an exploding market become worrisome? For Apple, the answer is when the sales are largely due to ridding itself of lower-cost iPhone 4 inventories, rather than ramping up sales of its iPhone 5. And that, according to Gartner, is exactly what happened in China in Q1. Unfortunately for Apple shareholders, with no new phones on the (immediate) horizon, "the next two quarters will also be challenging," says Anshul Gupta of Gartner.

Now, couple the shedding of iPhone 4 inventory in China with Apple's inability to secure subsidy deals with the likes of China Mobile, the largest wireless carrier in the world, and it's difficult to see how Apple moves its iPhone 5 units in Asia. Asking the Chinese consumer to spend $650 or $700 on an iPhone is wishful thinking, to say the least. Maybe it's time Apple CEO Tim Cook makes another trip east?

As for the mobile phone OS world, Google (NASDAQ: GOOGL  ) isn't just holding its own with Android; it's continuing to pull away from the pack. Last year at this time, Google's Android held about 57% of the global smartphone OS market, with Apple a clear second at 22.5%. In this year's Q1, the two behemoths still own the OS market with a combined 92.6% share, but the gap between the two is widening in Google's favor. Google's Android OS now runs on over 74% of all smartphones in the world, while Apple's iOS market share has dropped to 18.2%.

Okay, so now what?
As Google and Samsung continue to grow their respective market shares, Apple is staring down what could be a tough couple of quarters -- not a pleasant notion for shareholders patiently waiting for Apple to break out of its share price funk. So, what's an iFan to do? If you're on board with the long-term potential of Apple at these share price levels, patience has never been more important.

There's a debate raging as to whether Apple remains a buy The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 15, 2013, at 7:18 AM, DalePlourde wrote:

    Motley Fool in the last few months has been writing negatively about Apple, without grounding in facts. i.e First the article writes Apple's 650 phones are too highly priced in Asia, neglecting to say that Apple is expected to launch a lower cost high quality iphone in the fall. As well that Apple obtains 57% of all profits from the Mobile market, and Samsung the other 43%, other players from Nokia to Blackberry are minor. As well Apple is steadily building it's presence in China with a new research hub in Shaghai and new retail stores. Apple makes billions of dollars from it's current products, in a growing tablet and mobile market, as the top brand out of two it will continue to dominate the market. Secondly Apple has increased innovation which the author did not mention, via increased R&D spending, new products are on their way. Apple also has a very trusted brand with millions of loyal customers who willingly wait until the next product cycle begins. With Cook's focus on Apple's long-term relevence and success Apple will be around for decade to come. Motley Fool very likely has a vested interest in seeing Google shares appreciate in value, and without accurate facts or the whole story is trying to create more Apple fear.

  • Report this Comment On May 15, 2013, at 8:27 AM, larryw101 wrote:

    I totally agree with the above reader's comments.

    Motley Fool authors, especially Austin Smith, have flooded the MF site with article after article regarding Apple in a negative manner. To further add lack of credibility to Motley Fool, Smith has done several flip flops saying to buy Apple one day only to write an article the next saying to sell. In fairness to Smith, he is not the only author on MF to do so.

    This type of slanted journalism is very upsetting and has caused me to refrain from putting any credence in what MF prints.

    If you notice, very few people comment on here which tells me very few read articles on here.

    Motley Fool needs to monitor and verify the facts and accuracy of these articles before publishing them.

    They truly are looking foolish out here and may not even be aware of it. IMO

  • Report this Comment On May 15, 2013, at 1:07 PM, Trillz wrote:

    The apple I phones are great they handy and the new wave of getting ahead in today's world those with one tend to get ahead those who don't find themselves struggling to get infomation#ya DIG#cc..Ijs

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