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Apple Inc.'s iPhone X is a Hit in China

Ashraf Eassa, The Motley Fool

According to new data from market research firm Kantar Worldpanel, which holds itself out as "the global expert in shoppers' behavior," Apple's (NASDAQ: AAPL) highest-end iPhone, known as the iPhone X, is a big hit in China. 

"Apple is now back on form -- the iPhone X was the top selling [smartphone] model in urban China in November, with a market share of 6%," a press release from Kantar Worldpanel said.

Apple's iPhone X.

Image source: Apple.

 

What's even more encouraging -- at least for Apple and its stockholders -- is that many iPhone X sales in China were to individuals that were using smartphones from other companies like Huawei, Xiaomi, and Samsung (NASDAQOTH: SSNLF), according to the report. 

"In urban China there are significant numbers of Huawei, Xiaomi and Samsung customers switching to the new iPhone models, which they deem a cut above the rest," the press release continued.

Big share gains for Apple in China

The data from Kantar Worldpanel shows that in China, Apple saw its smartphone sales share grow from 19.7% in the three-month period ending in November 2016 to 24.3% in the three-month period ending in November 2017. 

That share gain came entirely at the expense of Android smartphone sales in the region during that period, as Android-based smartphone sales' share in China dropped from 80.1% in the prior-year period to 75.5% this year. 

Kantar Worldpanel analyst Dominic Sunnebo said in the press release that "Apple was riding on the back of some momentum before the iPhone X release but demand for the latest model in urban China has been staggering given its price point." 

Implications for the current product cycle and beyond

Investors might recall that Apple has been facing some difficulty in the Greater China region over the last few product cycles. After enjoying monster iPhone growth in the region during the iPhone 6-series cycle during the company's fiscal year 2015, Apple saw iPhone sales in Greater China decline by 17% in the following fiscal year and by another 8% in the one following that . 

Some attribute those declines to Apple not bringing enough innovation with its iPhone 6s-series and iPhone 7-series smartphones. While Apple dramatically upgraded the internals of these devices, the form factors were largely unchanged compared to those of the iPhone 6-series devices. 

Apple's iPhones in a

Image source: Apple.

The iPhone X, on the other hand, brings both a form factor change (a move from large bezels to a nearly bezel-free display), a fundamental display technology change (a move from older liquid crystal display, or LCD, technology to more advanced organic light-emitting diode, or OLED, display technology), and the addition of a 3D-sensing front-facing camera. 

The iPhone X is also built from more premium materials than prior-generation iPhones, thanks to the use of a glass back and a stainless-steel frame (the iPhone 8 and iPhone 8 Plus have glass backs, but they still employ cheaper aluminum frames). 

It seems to me that premium smartphone customers in China respond well to both form factor changes as well as positive user experience paradigm shifts. 

The question, then, is whether Apple can continue this momentum with future iPhone models. 

I think customers in the Greater China region will respond well to the rumored larger-screen iPhone X (large screens were arguably trendy in China before they were popular in other major markets) that's supposed to come out next year. A larger screen could plausibly be viewed as a form factor change, after all. 

Apple is expected to introduce a lower-cost iPhone with a nearly bezel-free display (though using cheaper LCD technology instead of the pricier OLED technology that's used in the current iPhone X) next year as well, which seems poised to bring the iPhone X form factor to more accessible price points. This could further juice Apple's iPhone sales growth in the Greater China region. 

Beyond the next product cycle, though, it seems that Apple will have a tougher job building iPhones that shake things up dramatically enough to keep the sales growth momentum going in Greater China.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.