What The Future Holds For Apple In China

Apple Inc. AAPL's success or failure hinges on the iPhone's performance in China, UBS's Steven Milunovich commented in a research report.

The analyst is modeling Apple's iPhone unit growth in fiscal 2018 to be 15 percent, which would mark a reversal after two years of 20 percent unit declines (check out Millunovich's track record). The estimate also assumes a 35 percent unit growth in Mainland China with Rest of China's iPhone sales being just flat.

iPhone sales in Greater China account for just over 20 percent of total iPhone demand which makes the country a "swing factor." But working in Apple's favor is the fact that the market is now five times larger, and hitting the analyst's projected sales figure merely implies a return to fiscal 2015's level. As such, under a bull case scenario, Apple could see a 58 percent surge in iPhone shipments in Mainland China and a 35 percent growth rate represents a "base case" but "reasonable" outcome.

Working against Apple's favor is the fact that Apple's brand as a status symbol is "waning" and Chinese consumers pride themselves in opting for a local brand, such as Oppo, Vivo and Huawei instead of Apple.

In fact, Apple's 3D sensing front camera could have been designed specifically for the Chinese consumer and a counter to Huawei's selfie-cam.

Shares of Apple remain Buy rating with an unchanged $170 price target.

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IPhone Buying Interest Higher Than Last Year _______ Image Credit: Apple Store, Sanlitun, By Mercureuma - Own work, CC BY-SA 3.0, via Wikimedia Commons