Here's How Apple Wins in China

Here's How Apple Wins in China

One of the negative aspects of Apple's most recent quarterly results was an unexpectedly large slowdown in China. This was particularly concerning because at $4.9 billion in revenue during the third quarter, Apple's Greater China business accounts for about 14% of its total sales -- and Apple needs this number to grow substantially in the years ahead if it's to muster any type of significant revenue growth from this point forward. Instead, Apple's Greater China operating segment revenue declined by 14% in the third quarter on a year-over-year basis and 43% when compared to the second quarter of 2013.

Also of concern to Apple investors is the rapid rise in market share for Google's Android operating system, which has taken a commanding lead in China and other global markets. In fact, some estimates peg Google's share of the Chinese smartphone market at more than 70%.

However, recently published research from Morgan Stanley suggests that Apple's prospects in China are about to receive a substantial boost from the rumored launch of a lower-priced iPhone "5C" on September 10.

Morgan Stanley surveyed 2,000 Chinese mobile phone users and found that 23% of potential smartphone buyers intended to purchase the iPhone 5S, which was slightly above the 19% of phone owners that chose the iPhone in Morgan Stanley's previous survey in January 2013. However, that number jumped to 36% if Apple were to launch a lower-priced iPhone.

As for how low the iPhone 5C would have to be priced, the survey found that Chinese consumers consider US$486 (or RMB 4,000) to be an acceptable price range. That's a very positive sign for Apple, because it's widely expected to price the iPhone 5C at $399 or less.

Also interesting to note is that Morgan Stanley's survey found that Apple could receive an additional 6% boost in market share if it were to reach a deal with China Mobile to bring the iPhone to its massive network of subscribers. With recent reports of talks between Apple CEO Tim Cook and China Mobile's management, the two companies may be making progress on this front.

The Foolish bottom line
A successful launch of a lower-priced iPhone combined with a deal with China Mobile could help Apple's smartphone market share surge in the massive Chinese market. However, in order for Apple's stock to soar, a few other critical things need to fall into place. In The Motley Fool's special free report, "5 Secrets to Apple's Future," our analysts outline the key factors every Apple investor needs to watch. Just click here now for your free report.

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Joe Tenebruso manages a Real-Money Portfoliofor The Motley Fool and is an analyst on the Motley Fool Stock Advisor and Supernova premium service teams. You can connect with him on Twitter @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google. It also owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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