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Apple iPhone 7 Can’t Stop Market Share Slide in China (AAPL)

Apple stock

A report from UBS analyst Steven Milunovich indicates that demand for Apple Inc. ’s iPhone 7 is ‘tepid’ in China, CNBC reported. The company is schedule to report its third quarter earnings on October 25. Wall Street is excited to know about the iPhone 7 sales. UBS, however, is optimistic about the company and reiterated its buy rating on AAPL, citing its compelling valuation and long-term potential.

iPhone Sales in China

According to the reports, Apple has been losing market share to domestic Chinese brands including Huawei, OPPO, and Vivo. The greater China market represents about 25% of the company’s revenue.

Apple Inc. (NASDAQ:AAPL) Store

“IPhone 7 interest tepid … distributor checks find that iPhone 7 sales are weaker than the 6s was out of the box [after launch],” Milunovich wrote in his research report.

The local distributor checks showing that the iPhone 7 sales is weaker than iPhone 6s sales. “High-end phone penetration is 80-90%, and perceived lack of innovation for the 7 has made users hesitate to upgrade,” Milunovich wrote in the report.

“Apple [is] losing share to domestic handsets … Apple’s brand remains strong, but the App Store can be difficult to access and slow,” he noted.

Apple in China

Apple Inc. has a real problem in China. The company’s premium handsets are having a hard time proving their worth against the country’s local products. The iPhone is in a battle to fend off the growing of threat of Chinese handset giants like Huawei. Rooted massively in the region, Huawei and others like it produce phones that easily match the specs of the latest iPhone. Beyond that, these products are rated to be just as efficient as their U.S. competitors. They come at just a fraction of the cost too.

The majority of future growth for Apple’s depends on its strong foothold in China, the world’s second-largest economy. The company’s revenues in Greater China fell 33% year-on-year in its fiscal third quarter.

Earlier this year, billionaire investor Carl Icahn unloaded his entire stake in Apple on concerns about the company’s growth in China. Icahn sold around 45.76 million shares of the company during January-March period. “We made several billion dollars on [Apple]. I don’t think anybody can tell you that China is not going to have a problem, even though it might be a very small one,” Icahn told CNBC. He believes that China’s government could “come in and make it very difficult for Apple to sell there… you can do pretty much what you want there.”

The U.S. tech giant plans to boost its investments in China as it looks to reverse falling sales and regulatory hurdles in the country. During his recent visit to China, Cook had spoken with senior government officials and pledged to expand the firm’s presence across the world’s second-largest economy.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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