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Apple's top iPhone market could very well be China very soon

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January 26, 2015

It looks like very soon, Apple's top iPhone market may no longer be the United States by rather China instead.

Set to announce its earnings for the 4th quarter this week tomorrow, Apple could reveal that it sold more iPhones in China than in the United States for the first time ever.

Analysts at UBS Securities predict that China captured about 36.2 percent of all iPhone shipments last quarter, compared with 24 percent in the U.S.

Understandably, that's a very big change from the same period last year, when the U.S. held about 29 percent of iPhone shipments, and China close to 22.1 percent.

To be sure, Creative Strategies analyst Ben Bajarin forecasts that Apple sold 2 million more iPhones in China than it did in North America.

Analysts believe the changeover was initially triggered by Apple's deal with China Mobile in December 2013 and then boosted by the release of the iPhone 6 across all three of China's major wireless carriers in October 2014.

In 2011, China became the world's largest smartphone market and now is home to an incredible 519 million+ smartphone users.

Apple has been striving the past few years to gain more market share in the China by securing deals with its major carriers.

An agreement with the nation's largest wireless carrier, China Mobile, proved challenging but was key as it provides access to more than 800 million subscribers.

But while all of this is happening, Apple faces challenges in China getting regulatory approval for its latest iPhones.

Though the launch of the iPhone 6 and the iPhone 6 Plus was delayed as a result, Apple still saw a jump in sales among Chinese mobile phone consumers.

Phone sales in China grew more than 45 percent annually in November, triggering a record high in monthly sales volumes, according to Counterpoint Research.

The market research firm attributed the gain to "rich urban Chinese consumers" attracted to the new iPhone's form factor.

Apple's twelve percent market share in China pushed it into third place behind dominant local players Xiaomi and Lenovo.

The quarter is a key one for Apple as it marks the first full quarter in which Apple got to play in the big-screen leagues.

Launched in September 2014, the 4.7-inch iPhone 6 and the 5.5-inch iPhone 6 Plus were Apple's responses to a market in which consumers have increasingly been drawn to large-screened phones.

The lack of a big-screen smartphone is one reason Apple had been losing market share and customers to Android vendors such as Samsung, which have long been offering phones in various screen sizes.

Globally, Apple is now expected to have sold around 65 million iPhones during the final quarter of last year, according to the crystal ball of Piper Jaffray analyst Gene Munster.

In an investor's report released late Sunday, Munster said he has upped his iPhone sales forecast to 65 million from 61 million previously, based on supply of the iPhone 6 and iPhone 6 Plus catching up to demand before the end of the quarter.

The analyst did note that investors are looking for sales in the range of 65 million to 69 million iPhones for the fourth quarter of calendar 2014, which was Apple's first fiscal quarter of 2015.

Other market analysts and reports are also predicting a stellar quarter for Apple thanks to the new iPhones.

Morgan Stanley analyst Katy Huberty is eyeing iPhone sales of 69 million. KGI analyst Ming-Chi Kuo sees iPhone sales surging as high as 73 million, according to AppleInsider, with the iPhone 6 accounting for more than 42 million in unit sales, and the iPhone 6 Plus a little more than 16 million.

Whatever the actual tally, last quarter's iPhone sales will most certainly outshine the record 51 million iPhones sold in the final quarter of 2013.

Apple isn't as likely to be as happy with last quarter's iPad sales, according to Munster. The analyst has reduced his sales forecast for Apple's tablet to 22 million from 25 million.

Munster didn't give any reason for the potential drop in his forecast but noted that Wall Street is anticipating iPad sales of around 22.5 million.

Overall unit sales of 22 million would represent a 15 percent drop from the same quarter last year.

To be sure, tablet sales have been slowing due to a variety of factors -- including more people buying phablet-sized smartphones, such as the iPhone 6 Plus, as an alternative to tablets.

Finally, the Apple iWatch is expected to hit the market sometime in March, according to Munster. The analyst is looking for 8 million in sales for the watch's first full year based on an average selling price of $500.

But he believes that it could take more than a year for the iWatch to truly take off among consumers.

"While we continue to believe that interest from consumers is still a bit tepid given our survey work, we believe that as we get closer to the launch of the watch and have increasing media attention, it will increase both consumer and investor optimism around the worth of the watch."

In other mobile news

Apple said this morning that it has set new iPhone sales records in Japan, South Korea and China.

In Japan, Apple won a little over fifty-one percent of all smartphone sales in November. Japan has traditionally been a strong region for Apple, but now it's becoming increasingly difficult for competition to challenge Apple's dominance in near to mid-term.

The growing audience of iPhone users in Japan may also benefit the adoption of the upcoming Apple Watch.

To be sure, as consumers took a liking to big-screened phones, Apple was late to the party compared with its Android rivals.

Acknowledging the demand, Apple finally released its 4.7-inch iPhone 6 and its 5.5-inch iPhone 6 Plus last September in hopes of winning back customers and market share.

That strategy seems to be paying off, not just in the United States and other countries but in South Korea as well, where its main rival Samsung has dominated for so long.

In Samsung's home base, Apple accounted for about 33.7 percent of all smartphones sales in November.

"No other foreign brand has gone beyond the 20 percent market share point in the history of South Korea's smartphone industry," Counterpoint Korean research director Tom Kang said in a statement.

"It has always been dominated by the global smartphone leader, Samsung. But iPhone 6 and 6 Plus have made a difference here, denting the competition's phablet sales. Korea being the world's highest penetrated phablet market (handsets with 5 inches above screens) earnestly needed a large screen iPhone for quite a time and now this thirst has been quenched."

Apple's share of sales in Korea could have been higher had the company's supply been able to reach demand.

"If there was a better supply of iPhone 6 and 6 Plus 64GB & 128GB models during the month, then Apple's share could have climbed to the 40 percent level," Kang noted.

That big a piece of the pie would have truly challenged Samsung's share, which came in at about 45.8 percent over the same period.

In China, iPhone sales grew about 45.2 percent annually in November, triggering a record high in monthly sales volumes. Counterpoint attributed the gain to "rich urban Chinese consumers" attracted to the new iPhone's form factor.

Apple's twelve percent market share in China pushed it into third place behind dominant local players Xiaomi and Lenovo.

"The iPhone 6 was the most popular iPhone model during November accounting for 69.2 percent of the total iPhone sales," Counterpoint research director Neil Shah said.

"But with the improving supply of iPhone 6 Plus, we believe the iPhone 6 Plus sales will contribute to a greater proportion of the sales mix in December and during the Chinese holiday season in Q1 2015."

Apple initially ran into issues launching the new iPhones in China. The iPhone 6 and iPhone 6 Plus went on sale in the United States and other countries on September 19, but China wasn't on the invite list due to a delay in regulatory approval of the new phones.

The country's Ministry of Industry and Information Technology had to approve the new iPhones for network access before retailers could officially start selling them.

That approval finally came through in late September, with sales launching in October 2014.

Globally, Apple's iPhone sales grew by 26.7 percent annually in November 2014 over the same month in 2013.

Sales were boosted not only by the new iPhone 6 handsets but also by the older and less pricey iPhone 5S and 5C, aimed at prepaid customers in emerging markets. By tapping into the increasingly popular big-screened device market, Apple both challenged Samsung and made up for slowing demand for the iPad tablet, according to Counterpoint.

By simply launching the iPhone 6 Plus, Apple killed two birds with one stone-- first, jumping into the fast growing phablet segment and recapturing the share lost to Samsung's popular Note series in the premium smartphone category.

Secondly, by offsetting the lackluster demand for iPads and targeting users looking for a single device and thus in turn recognizing even greater contribution to the top-line and bottom-line from the iPhone 6 Plus than it would have been able to generate from the iPad Mini.

In other mobile news

We've just learned that Apple's latest iOS 8.2 build (only available in beta for now) features support for the Apple iWatch, signaling that the expensive 'wrist puter' might coming sooner than previouly expected.

Of course, the new device requires an iPhone nearby to work, hence the need for the handset's OS to support the smartwatch.

Last month, our sources close to Apple said the company's engineers were fixing software bugs in the iWatch, suggesting the device won't be ready until at least the end of the first quarter of this year.

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Other outlets are also claiming the iWatch will go on sale this March, so it's probably all over the map by now.

The latest build of the iOS 8.2 beta available to app developers under NDA has references to the Watch in its Bluetooth connectivity panel.

A screenshot of the user interface includes a notification that suggests the iWatch will pair with the iPhone via a standalone iOS app.

Apple is letting third-party developers get to work on building software for the new device. In November, it released a SDK for the iWatch that includes tools to build stand-alone apps for the device as well as notification and mini 'Glance' apps.

In other mobile and device news

Some say that ZTE and Alcatel's OneTouch have a bit in common and they are probably right. ZTE's Grand X Max smartphone is now going to AT&T's prepaid subsidiary, Cricket Wireless, we are told.

Both companies focus on selling affordable mobile devices for the consumer market. And, they concentrate on prepaid customers.

And they're both growing pretty fast if numbers from the last quarter are any proof. And as Chinese companies operating in the United States, they've both flown under the radar, at least so far, anyway.

Now ZTE and Alcatel both want to make more advertising in the U.S. and they made some bold claims at this year's Consumer Electronics Show (CES).

For one thing, they're preparing to spend more on marketing. They're sponsoring more events and arenas. They're increasing the quality of their products and expanding into related fields such as wearable technology.

They're also investing in Silicon Valley in hopes of drumming up developer support. To be sure, their ambitious goals underscore the constantly shifting ground in the competitive U.S. smartphone market.

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Source: Apple.

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