Apple's (AAPL 0.51%) share of China's smartphone market could continue to rise in the coming months. A recent survey suggests the iPhone is increasingly popular with middle-class, urban Chinese buyers, and is winning over a growing number of former Android owners.
iPhone 6. Photo: Apple.
A growing number of Chinese Android switchers
Earlier this month, analysts at CLSA released the results of a survey that polled 854 Chinese phone owners. Only 36% currently owned an iPhone, but 54% of those who planned to purchase a phone sometime in the next 12 months said they would choose one of Apple's handsets.
That's great news for Apple, as China is increasingly one of its most important markets. In its fiscal second quarter, China brought in almost 30% of Apple's revenue. It's also its single fastest growing market.
Can Apple continue that rapid rate of expansion? One of the issues it faces in China is saturation. Already, the Chinese smartphone market appears to be approaching that point, as growth has slowed considerably. In May, research firm IDC reported that China's smartphone market contracted 4% on an annual basis in the first quarter, and projected a roughly flat market for the year in total.
That means Apple may have to win over the hundreds of millions of Chinese phone owners with handsets powered by Google's (GOOG 1.43%) (GOOGL 1.42%) Android operating system. That may seem like a tall order, but CLSA's survey suggests that it can. Apple has already managed to capture a fair number of Chinese Android converts -- of those polled that currently own an iPhone, 53% had previously owned an Android smartphone -- and the number could continue to rise.
Among those that planned to buy a smartphone in the next 12 months, 36% of those who currently owned an Android phone intended to buy an iPhone. Admittedly, there's some switching happening in the other direction, but to a much lesser extent -- only 13% of current iPhone owners that planned to buy a new phone in the next 12 months intended to get an Android handset.
CLSA's survey results fit with the findings of other research firms and comments made by Apple's management. On its earnings call in April, Apple's CEO Tim Cook said the company was seeing "a higher rate of switchers than in previous cycles." Researchers at Kantar Worldpanel noted similar trends: in the first quarter, Apple's share of the Chinese smartphone market rose to 26.1% from 17.9% in 2014.
Could China look like the U.S. or Japan?
As a market, China has historically been favorable to Android, with the operating system powering about four out of every five smartphones sold. Android's dominance was enough to prompt the interest of the Chinese government, who published a report skeptical of China's dependence on Android in 2013.
Apple's iPhone has had more success in more developed economies, most notably the U.S. and Japan, where Apple's share of the smartphone market hovers near 40% and 50%, respectively. It may take several years, but if Apple can continue to convert and retain Chinese customers, it could eventually see similar rates of market share in the Middle Kingdom.
This isn't necessarily a problem for Google, as most of the Android phones sold in China sport heavily modified, forked versions of the Android operating system. These forks strip out Google's services in favor of alternatives. By some estimates, Google's app store, Google Play, accounts for less than 10% of Android app downloads in China, for example.
But Android OEMs could suffer. Samsung has already seen its profits and share of the Chinese smartphone market plummet in recent months as homegrown Chinese vendors have offered more compelling alternatives. A booming Chinese iPhone business could make matters worse.
Of course, it remains to be seen if these rates of conversion hold, or if Android vendors will be able to respond with something more compelling. But CLSA's survey should be seen as a positive sign.
