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The iPhone’s Roaring Comeback in China Is a Bullish Sign for Apple Stock

By Harsh Chauhan - Jan 18, 2020 at 12:45PM

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Apple is back in the good books of Chinese customers, and that bodes well for iPhone sales this year.

Apple (AAPL 1.30%) has hit the sweet spot with the iPhone 11. There are reports that the latest generation iPhone became the fifth-most popular smartphone in terms of sales during the third quarter of 2019 just days after its launch.

And now, it has emerged that the iPhone 11 has helped Apple make a terrific comeback in China.

The iPhone 11 in different colors.

Image Source: Apple.

Apple witnesses a juicy jump in Chinese shipments

Based on data from the China Academy of Information and Communications Technology (CAICT), Reuters reports that Apple sold 3.2 million iPhones in China in December. That's a nice bump of 18.5% over the prior-year period's 2.7 million units. 

More importantly, Apple's impressive growth in China last month came amid a decline in overall smartphone shipments. Overall smartphone shipments in China shrank 13.7% annually in December to less than 30 million units, according to CAICT.

This indicates that Apple may have regained its mojo in the Chinese smartphone space after last year's disaster. A year ago, the company had to slash its revenue forecast thanks to weakness in China.

The fact that Apple has managed to record growth despite a slowdown in the broader smartphone market speaks highly of the company's new product strategy. Management at its Cupertino, California, headquarters smartly reduced the per-unit price of the entry-level iPhone 11 by $50 and gave it better video and camera capabilities, a bigger battery, and a few other goodies.

This move seems to have made the iPhone 11 a better value-for-money prospect, leading to strong sales in price-sensitive markets such as India, and now China. It won't be surprising to see Apple sustain this momentum for the remainder of the year for two reasons. First, Apple is expected to stick to its strategy of providing better value with this year's iPhones, and second, it is expected to win big from the ramp-up in 5G (fifth-generation) smartphone shipments in China this year.

The iPhone could dominate China this year

Wedbush Securities analyst Daniel Ives predicts that Apple could witness a strong upgrade cycle in China this year. According to Ives, around 60 million to 70 million iPhone users in that country could consider upgrading in the next few months.

Apple is expected to ship around 200 million iPhone units in all of 2020, so China could account for a major chunk of those shipments if the upgrade cycle actually materializes. The good news for Apple investors is that the company is likely to go all out to woo Chinese consumers in the wake of 5G adoption over there.

The 5G smartphone market in China is still in a nascent stage. Rosenblatt Securities estimates that 25 million 5G smartphones will be shipped in China in the first half of 2020. The firm adds that customers have been slow to buy 5G smartphones in China as they have been waiting for more affordable price points to arrive.

As a result, 5G smartphone demand in China could remain weak in the first couple of quarters and might pick up the pace in the second half of the year as network coverage improves.

Apple could carve a nice chunk of the Chinese smartphone market for itself by launching an affordable 5G device. Supply chain leaks indicate that Apple could be coming out with a 4.7-inch, LCD-display equipped, 5G-capable iPhone in 2020 to keep costs in check. Apple analyst Ming-Chi Kuo also predicts that Apple will focus big time on 5G technology this year, with all four of its iPhone models coming with 5G.

This means that Apple could be expected to launch 5G-enabled iPhone models at various price points in 2020 that could cater to both budget and premium buyers. Optimistic estimates from market research firm Counterpoint Research suggest that 200 million 5G smartphones could be shipped in China this year.

In all, China presents a huge opportunity for Apple to grow its iPhone sales this year thanks to the arrival of 5G networks. And if Apple does lure Chinese consumers into its fold with differently priced iPhones, the company's top line could get a nice shot in the arm. Apple gets over 17% of its revenue from China, and a nice share of that country's 5G smartphone market could make it a top tech stock for 2020.

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