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Apple Inc. (NASDAQ:AAPL) iPhone China Drought Needs “Timely Stimulus”

Tim_Cook Apple Inc music

Apple Inc.  stock has been down since it announced earnings last month. Though the firm posted robust numbers, beating estimates for both revenue and profits, a slight miss on the iPhone sales was not likes by investors, who were concerned by the fact that most important iPhone market in China is slowing down.

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4G is just getting started in China

Mobile Internet users in China reached 557m by the end of 2014, making it biggest smartphone market, reveals data from CNNIC. But, Apple makes high-end phones that run on high-end networks. In China 4G LTE networks in still in early stages of roll out.

In a research note, RBC analysts noted that only 12% of the Chinese mobile users make use of 4G. Calculating the number of users based on this percentage is difficult as Chinese carriers list mobile internet users under the head “high-speed,” which can be both 3G or 4G. However, CNNIC does say a max of 40% users are in “high-speed” zone while 38% are still stuck with 2G.

As of now, only China Telecom support 4G service in the region. The carrier operates a SCDMA 3G network, which supports TD-LTE 4G, and the govt. granted it a 4G license in late 2013.

But in June, China Telecom and China Unicom were given a “trial” FDD-LTE licenses to develop 4G mobile networks. Both the carriers are planning to develop 4G networks in selected cities from this year, the report notes. That could be a boon for Apple demand.

China not a concern for Apple

In China, the analyst expects users to buy 4G compatible phones once the service is widely available. China Telecom alone expects to add around 100m 4G users this year. With the spread of the wireless service in China, smartphones will become much more relevant than they are today. This will push many users towards Apple’s iOS, which is seen as an efficient tool for managing such networks.

Summit Research’s Srini Sundararajan reckons that China will be alright for Apple because the country’s leaders just can’t afford to let the economy fail. He said, in a report published on Thursday August 6, that the State “cannot allow economy to sputter for long as there could be political problems which can be avoided by a timely stimulus.”

For that reason Sundararajan thinks that fears of a China slow down for Apple have been overblown by some on Wall Street. He says that the iPhone 6S will beat sales of the iPhone 6 and that Apple “is too astute a company to take any chances with its profit machine.”

So, the analysts feel there is no need for Apple to “win China,” it can stay relevant even if it maintains the growth that has been in the past five quarters.

Even UBS analyst Steve Milunovich believes Apple  China concerns are overblown. Talking to “Squawk on the Street,” the analyst noted that the stock market concern may not have much impact as only 7% of the Chinese population invest in the stock market. The analyst has a Buy rating on the stock.

On Wednesday, Apple  shares closed up 0.66% at $115.40, and year to date the stock is up almost 3% while in the last 1-month the stock is down almost 9%.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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