The Case For Apple Inc.'s Opportunity in China in 3 Charts

For Apple, pursuing the low-end smartphone and tablet market is a terrible idea.

Mar 13, 2014 at 9:00PM

When it comes to Apple (NASDAQ:AAPL), the Street is getting impatient. Hoping the iPhone 5c would be a low-cost smartphone to compete with an onslaught of cheap Android-powered devices in important markets like China, the market was largely disappointed when Apple announced the pricing of its 5c at just $100 less than its flagship 5s. Apple's winning strategy at the high end, which helps Apple consistently capture the lion's share of global mobile phone profits, apparently isn't enough for the Street.

But no matter what the Street says, there is no incentive for Apple to pursue the low-end market -- especially in China. In just three charts based on just-released data from Umeng (via Benedict Evans), an app analytics firm that has its code in a large portion of active Chinese apps, it's clear that the best strategic pricing move for Apple in China would be to continue to pursue the premium market, where there is still meaningful opportunity.

Apple Store China

A packed Apple store in China.

Growth is still robust
Why compete on price when the entire China market is growing so robustly and Apple has already proven it can successfully market to the high end? Doing so could mean missing out on lucrative growth at the high end.

In the first quarter of 2013, there were just 380 million active smartphones and tablets. By the end of the year, there were 700 million.

Umeng Chart

Data for chart retrieved from Umeng's 2013 report on smartphones and tablets in China.

With growth like this, it would be silly for Apple to launch an assault at the low end. If Apple attracts just a sliver of first-time smartphone and tablet buyers in China in this massive, fast-growing market in the coming years, Apple could benefit.

Existing smartphone owners are upgrading in droves
If there's any consumer in China that may be able to afford an iPhone, it's someone who already has a smartphone. And apparently frequent smartphone upgrades are not just a Western phenomenon.

Umeng Chart

Data for chart retrieved from Umeng's 2013 report.

Smartphone upgrades in China are becoming increasingly commonplace, according to Umeng.

High-end smartphones are popular in China
After the segment with smartphones prices between $1 and $149 -- a category that would be suicide for Apple to enter -- the $500 plus category is the largest segment of active smartphones in China. And 80% of these are iPhones, according to Umeng.

Umeng Chart

Data for chart retrieved from Umeng's 2013 report.

That's a fast-growing smart device market, a massive replacement market for smartphones, and more than a quarter of smartphone owners choosing high-end smartphones (where Apple irrefutably dominates). These three ingredients sound like a recommendation for Apple not to pursue the low-end market in China and, in doing so, risk giving up pricing power.

The opportunity at the high end looks enticing -- maybe not enticing enough for investors looking to get in and out of Apple stock in the next year, but enticing enough for investors with a Foolishly long-term time horizon.

More from The Motley Fool
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "
The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Daniel Sparks owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers