At first glance, Tim Cook's' strategy in China may seem confusing, but there's definitely a plan in place. Apple (APPL) is fighting a tough battle against a set of highly aggressive local players, in what is now the world's biggest smartphone market.
Vivo and Oppo's smartphones are all the rage in China, and Apple must take action to maintain control in this hotly contested market.
The need to win Chinese consumers is pretty easy to understand. Aside from their strong brand loyalty to the iPhone, China's obsession for smartphones is well-documented.
Some may contend that Apple hasn't really gone for the jugular in China. We, however, disagree. Central to production as well as consumption, its Zhengzhou plant, run by Apple partner Foxconn (FXCOF) , is designed to manufacture 500,000 iPhone devices a day.
Gradually widening its investments in China, Apple now plans to set up two new research and development centers in Shanghai and Suzhou. There are also two more centers on the anvil, in Beijing and Shenzhen.
China today accounts for $16.23 billion of Apple's quarterly operating segment revenue. That's close to Apple's entire sales numbers in Europe and is bigger than Japan and the rest of Asia-Pacific combined.
Five years ago, Oppo and Vivo were small fries, and Xiaomi, Lenovo (LNVGY) and Huawei were the acknowledged market leaders. Today, Oppo and Vivo control more than 30% of the market, and Apple controls about 10%.
What Apple needs is an innovative game plan. This would allow the company to drive profit and demand for the iPhone, while also having one foot in the future.
The lower-cost version of the iPhone has found mixed success in China. More iPhone variations would greatly help carve a niche in the country, while also being conscious of price-sensitive consumers.
Globally, Samsung's (SSNLF) ambition to throw Apple off the curb was a clear failure. After the Note 7 debacle, the company is struggling to win back customers and has pinned its hopes on the upcoming S8.
Oppo and Vivo might be staring at a similar fate of being driven downwards eventually by an inevitable absence of customer loyalty.
On the other hand, Apple's brand presence, consumer entrenchment and sheer global reputation are unquestionable.
Remember, the China App Store has grown by 90% year over year. The company's also won a patent case involving the iPhone 6. UBS has predicted Apple's sales in China to grow by 20% in fiscal 2018. This could affect Apple's earnings curve, currently projected to grow by 13.8% next year, faster than the expected 7.6% for 2017.
We'd recommend long-term investors to stay with this tech giant. Ignore temporary wrinkles and enjoy its future-readiness.
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