October 23, 2016

UBS on Apple performance in Asia

UBS Group (UBS) hosted its Asia telecom analyst, Jinjin Wang, for an investor call to discuss Apple (AAPL) in China. 

According to the analyst, China has been weak for Apple the past two quarters despite growth in domestic brands; the firm estimated 8% iPhone increase in fiscal 2017, which assumes a more moderate decline in China with new-to-Apple customers down 10%. China might be about half of new customers.

UBS will see what Apple reports next week and management's commentary; greater China is almost 25% of revenue at an above-average margin.

Apple knows it lost market share in China this year. It has blamed the product cycle and macroeconomic conditions, suggesting the losses may be temporary.

Jinjin said macroeconomic factors might be contributing factors, but more important are (1) lower-cost offerings from OPPO Electronics, Vivo and Huawei, which are gaining share thanks to advertising and strong offline distribution, and (2) less consumer embarrassment in owning a domestic brand.

UBS says Apple's brand remains strong, but the Apple Store can be difficult to access and slow.

Position: Short AAPL.