Chinese consumers prefer screens larger than Apple's iPhones 5s. Apple Store in Shanghai, Pudong. Source: Apple.
With numerous reports echoing that Apple (NASDAQ: AAPL) will release a larger iPhone 6, possibly in two screen sizes, one of the big questions for investors is how the device will perform in some of Apple's most important markets. Apple's most recent quarterly earnings and a new industry report shed some light on how the iPhone 6 could impact the Chinese market.
The demand for bigger screens
While it's easy to assume consumers like bigger screens on their smartphones, the latest data from Kantar Worldpanel proves that Chinese consumers are in the market for larger devices. Last month, 40% of smartphones sold in the country had a screen size larger than five inches.
This isn't lost on Apple. Reports from Bloomberg and The Wall Street Journal have said Apple may release two new iPhone screen sizes, one at 4.7-inches and the other larger than five inches. In addition to that, internal company slides show Apple knows consumers want a larger iPhone.
Dominic Sunnebo, Kantar's global strategic insight director, said in the Kantar report:
It's clear that phablets really are changing the way Chinese consumers use smartphones. More than one in five phablet owners now watch mobile TV on a daily basis, half do so at least once a month, and this is without widespread availability of 4G.
So this is sounding pretty good for Apple. Chinese consumers are buying big smartphones and they're tapping into existing 4G networks to make use of those large screen devices.
But it's not just big screens Chinese consumers want -- they also want Apple devices.
Chinese consumers prefer screens larger than the iPhone 5s. Source: Apple.
Apple's influence in China
Apple reported its fiscal second quarter 2014 results last week and demand in China is looking good. In the company's Greater China region, Apple said revenue rose 13% year over year, hitting $9.3 billion for quarter. CEO Tim Cook said in last week's earnings call that Apple had an "an all-time quarterly revenue record" in the region.
According to current VP and upcoming CFO Luca Maestri, two things contributed to Apple's great quarter in China: adding China Mobile to the list of Chinese carriers selling the iPhone and continuing to sell the more inexpensive iPhone 4S in the country.
While the new partnership with China Mobile is already starting to pay off, the full upside has yet to be realized. There's no way the pent-up demand iPhones has been met on China Mobile's network yet. China Mobile isn't finished building out its 4G network, which means there are plenty of customers who haven't bought an iPhone on the carrier's network yet, but could do so when the new iPhone launches and they have access to 4G.
Foolish final thoughts
To be sure, if Apple releases two larger-screen devices, it's no guarantee Chinese consumers will prefer them over the plethora of large -- and much cheaper -- Android devices. But the company's latest quarter in Greater China proves that consumers aren't shunning iPhones just because larger and cheap alternatives exist.
Apple needs to recreate the demand it saw this past quarter in China, and introducing not just a new iPhone but also one or two larger ones could help do that. While that should satisfy consumers looking for the latest and greatest device, it could also help Apple's low-priced market as well. When the iPhone 6 launches, it could push the 4S out of Apple's China lineup and be replaced by the 5c. That would offer consumers looking for a cheaper device a better deal than the current 4S offering, as well as give them access to LTE capabilities.
With the next iPhone likely to debut in the fall, investors will have to wait a bit to see how a new device plays out in China. But as the China Mobile deal continues to bear more fruit and if Chinese consumers continue to demand larger devices, there appears to be a lot to look forward to.
