Game Changer: Here's How Apple's iPhone 6 Can Win in China

As somebody who follows Intel closely, it's tough to forget how well the Lenovo K900 -- which was powered by Intel silicon -- sold in China. The phone was big, beautiful, and sported the logos of two brands that the Chinese population knows and loves. With the iPhone 6, Apple  (NASDAQ: AAPL  )  has a chance to not only drive that kind of success but to go even further than Lenovo/Intel could.

They love big screens in Asia
In Asia, and in particular China, large-screen phones are all the rage. Why that's the case is completely irrelevant to the discussion, and while many prefer the compact nature of the iPhone 5s, there's an even bigger market just hungry for a large iPhone. Remember, while Samsung sells more phones than any other handset vendor, not even Samsung has a brand that's as valuable as Apple's, leaving the door wide open for Apple to gain share.

Apple's iPhone 5s was a stunner, but they wanted something bigger in China. Source: Apple. 

Now, as detailed here, a larger screen will necessarily drive up the bill of materials for a next generation iPhone. However, the analysis shows that even with an incremental $40/unit cost, Apple need only grow sales by 8 million units over the iPhone 5s to offset the gross profit decline. Since a larger phone could gain some real traction among buyers that have preferred Samsung's Galaxy S/Note lines for their size, taking an 8 million unit bite out of Samsung's greater-than-300 million phones sold per year shouldn't be too hard.

How big is the opportunity?
Just how large is the opportunity for Apple in China? Well, the China Mobile  (NYSE: CHL  )  deal that everybody was so excited about didn't really amount to much; the carrier added about 1 million iPhone users during February. Now, there are some handset vendors that would love an incremental 1 million phones, but for Apple this isn't much especially if this 1 million represented the magnitude of the pent-up demand.

However, many believe that rumors of a large iPhone are actually keeping buyers from rushing to pick up the 5s. This seems plausible, especially given how important large phones are in China. That said, investors should also keep in mind that the incremental addressable market may not be as large as some may have expected. We won't really know until we get the first channel checks from the various analysts following the iPhone 6 launch.

Foolish bottom line
There's no doubt that a larger iPhone or, more likely, a family of iPhones with multiple sizes will help Apple maintain/increase its market share across a number of markets. The fact that Apple has waited so long to release a larger iPhone is a bit frustrating, but it should all ultimately work out for shareholders if there really is that kind of pent-up demand in China, and indeed the world, for a larger iPhone.

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  • Report this Comment On April 08, 2014, at 10:17 AM, Shaduck007 wrote:

    Dear Ashraf:

    East Asia might like large screens, but IPhones are considered premium brands. And the discrete 3.5"-4" screen look great and respectable in the hands.

    In Hong Kong, I noticed IPhone owners and IPAD or Samsung Galaxy. Tim Cook a year ago maneuvered brilliantly (when attacked by the CCP media), which matters.

    Though Samsung Electric fumbled and admitted guilt when assaulted, I don't think that mattered as those are very affordable. As the top IPhones are the most aspired product in Cn (affordable luxury).

    If Apple comes out with a Phablet it could slowly lose that premium (as an SA article mentioned on different grounds). [I saw a woman yelling her head off on the bus holding the 6" Samsung Note to her ear! Likewise I also saw two ladies in a somewhat upper middle-class restaurant maneuvering through their hands (both were the gold 5s with different translucent protections.]

    Take Care!

  • Report this Comment On April 30, 2014, at 12:05 AM, Shaduck007 wrote:

    Lenovo K900: 1700 RMB!

    No comparison to the latest IPhone 5s/c over 4500k RMB.

    Also little comparison between Samsung Galaxies and IPhones in Cn, at least Samsung has brand cache; which Lenovo lost, and Xiaomi has for that price segmentation (under 3k RMB).

    The China Mobile deal will gain users in the short-term, as the Cn wireless triopoly, including Cn Telecom and Cn Unicom first had to adopt TD-LTE before coming out with their previous global 3g-stds.

    The Cn Central Govt is pushing its "technological competancy" on 1st Android (low-hanging fruit) and now Apple. Apple's gain ought not be substantial from this joint venture, as it benefits the Government the most and Cn Unicom 2ndarily able to be in the Apple IOS ecosystem.

    On Fool.com, I'm able to focus on the content of your articles, while on SA more the discussion.

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