Apple, Inc.'s China Prospects Brighten, but Faces Hurdles

With China being the world's largest smartphone market, Apple (AAPL 0.52%) has long been interested in tapping more sales in the country. But recently the company has been losing market share in China to small -- but growing -- companies like Xiaomi. As recent data from IDC shows, Apple saw a glimmer of hope in the fourth quarter of 2013 with the company seeing its shipment market share jump from 6% to 7% sequentially.

Good, not great
The latest market share numbers, originally reported by The Wall Street Journal, are good for Apple but they aren't great.

On the upside, the company is back in the top 5 vendor category because of the iPhone 5s release. Launching the new model in China and the U.S. at the same time likely helped drive sales in the country. Apple investors should also be pleased with the fact that the latest market share numbers don't include shipments on China Mobile (CHL). Apple launched its phones on China Mobile's network in January and can use the network to boost its market share even further.

So what's not to like about this?

Apple is close to the bottom of the barrel when it comes to its place in the Chinese smartphone market, and it could be pushed out once again. Here's how the current market share numbers break down just for reference:

Source: IDC, via WSJ.

While Apple has made some gains, it's nowhere near dominating the Chinese smartphone market, and Xiaomi is right on its heels. Apple is historically very public about not caring about market share, but that doesn't mean the numbers are completely irrelevant, either. Market share shipments can be a good indicator of consumer preference in a country and helps gauge how well devices are received. While Apple's high-end devices won't sell as many phones compared to all of the cheaper smartphones on the Chinese market, investors obviously should still look for market share increases rather than decreases.

Apple's hurdles going forward will be in battling further against a market that prefers Android devices and fighting off China's smartphone rising star, Xiaomi. As I mentioned earlier, Apple is likely to boost its position in the country through its China Mobile deal, and some analysts have estimated the company could sell anywhere between 10 million to 30 million iPhones on the network over the year. That's a really wide range, so investors should keep a close eye on any news of how the devices are faring on China Mobile's network. Though China is the world's largest smartphone market, smartphone growth in the country is slowing. That means other vendors other than Apple will have to find new ways to grow as well.

For now, Apple investors should be pleased with the company's work in China, but there's still lots work to be done.