Apple's iPhone 6 Sales Could Soar In China

Katy Huberty, Morgan Stanley’s Apple analyst, published a report with an extensive analysis of the Chinese smartphone market. She surveyed 1,500 smartphone owners in 16 Tier 1 and 2 cities and found that iPhone ownership had increased from 20% a year ago to 25% currently with China Mobile being a key factor. Samsung’s share increased from 26% to 29% and the big gainer was Xiaomi, which doubled its share of the “install base” from 6% to 12%. (Note that I own Apple shares. I bought them about an hour before this note was published).
The top six smartphone companies gained 17 points of market share. HTC lost the most market share going from 9% to 5% and then the other firms that lost share did not show up on Huberty’s graph (Lenovo had the lowest share at 5% but was still up 1 percentage point in a year). It is not surprising that there are too many Chinese manufacturers of smartphones and if a company does not have enough unit sales to get economies of scale they will fall by the wayside.

Apple purchase intentions have jumped dramatically
Huberty’s survey showed a huge jump in purchase intentions for Apple’s iPhones in China going from 24% a year ago to 50%. If this huge increase were to happen the key financial takeaways are an additional 7% in revenue and $0.60 in EPS in fiscal 2015. The $0.60 in EPS is significant since consensus is it at $7.31 but keep in mind what people answer on a survey is usually more optimistic than when they actually have to pay for an expensive item.
Samsung could lose significant market share since its purchase intentions dropped from 30% to 13%. Most other smartphone providers except Lenovo remained essentially flat as can be seen in the chart below.

Apple’s new iPhones were available in China for pre-orders starting last Friday and this Friday is the first day they are available. There have been multiple indications of strong iPhone demand including reports of ten million or more reservations. I have also been tracking the iPhone 6 and 6 Plus lead-times which as of yesterday had the 6 with longer lead-times than in the US but shorter for the 6 Plus.
Some of the other key takeaways from her survey are:

• Of the people planning on buying an iPhone 49% indicate it will be a model 6
• 40% intend to buy a 6 Plus
• The combined 88% is higher than the 75% Huberty found in the US and the 80% she was modeling
• iPhone 5s users account for 32% of the demand
• Samsung users are in second with 29% of sales coming from its user base
• 14% are from Other Brands
• 12% are from iPhone 5 users
• Apple has seen its leading repurchase rate increase from 60% a year ago to 75% this year
• Samsung is in second but its repurchase rate has dropped from 53% to 42% while the next three providers, HTC, Huawei and Xiaomi, saw theirs increase.