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Apple (AAPL) is reportedly cutting iPhone prices in China. Ben Bajarin, principal analyst at Creative Strategies, said prices were lowered because China is entering the Lunar New Year, a normal time for promotions.
Bajarin said the smartphone market as a whole is “in a recovery phase.” Currently, the replacement cycle for each smartphone is becoming longer, but he believes that iPhone demand trends in China are recovering from low levels.
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Editor’s note: This article was written by angel smith
video transcript
– For Apple, in recent days there has been news that it is offering discounts on new iPhones in China due to weak demand, and that the Apple Watch may be discontinuing its blood oxygen feature to avoid a U.S. import ban. Stock prices fell on the news. To find out all this, we’re joined by Ben Bajarin, CEO and Principal Analyst of Creative Strategy.
Ben, it’s always great to have you on the program. There are a few places you can start, Ben. Several different headings.
But maybe I’d like to start with Ben with reports that Apple is offering these discounts in China, including on the latest and greatest iPhones. You know Apple, Ben. How unusual is it for Apple to do that in China?
And why do you think Tim Cook is doing that? Does it indicate that demand over there is weakening and local competition is increasing? What do you think?
Ben Bajarin: Well, I think it’s a mix of things. This was clearly an all-time strong quarter. Happy Lunar New Year for Chinese iPhone.
I know that because of those promotions and Lunar New Year, there are promotions going on as well, although not necessarily discounts. In other words, demand has not softened significantly.
But I think there are differences between all these models. For example, China continues to perform well at the upper end of its price range. So as ASP goes higher, Pro Max is definitely part of that mix shift.
So I think that kind of portfolio rebalancing could also be part of it. And carriers are trying to implement these promotions.
But again, I think this quarter has generally been relatively strong against the backdrop of the conditions that we often see around Lunar New Year. But that mix shift will be one of the big questions about how much volume and ASP growth there will be in that region.
– Ben, does this mean Tim Cook is worried about sales in China?
Ben Bajarin: i don’t think so. I’ve seen pockets of this before. Once again, I think the smartphone market as a whole is entering a recovery period. There were signs of this in China last year.
So I think there was some optimism in this quarter. But again, one of the biggest trends that I think is impacting the industry as a whole is that smartphone replacement cycles are becoming longer in all regions, including China.6-8 This has been clear for months.
China is typically the country with the shortest refresh cycles. And now that period has expanded to between three and six months based on price range. This in itself has various impacts on the overall market.
So I think the balance of strategy will again be disrupted as to how carriers will launch promotions to retain some of their sales.
– And, Ben, there is a lot of investor interest in Huawei. I just want to hear your opinion. How much of a competitive threat do you think Huawei actually poses to Apple in China?
Ben Bajarin: That remains to be seen. That’s a big part of the discussion. Obviously, they are one of the biggest competitors and were in a premium position for Apple, especially before some sanctions were imposed from the US.
I feel like it’s starting to pick up steam again. But again, it’s still relatively small. They’re also trying to do this with their own silicone, which raises some questions about the quality of their product.
I think we’ll probably see more of Huawei’s strength in the coming quarters. But competition is fierce there. Clearly, Xiaomi continues to do well.
And we can see that various products of BBK Group such as Oppo and Vivo continue to do well. Yes, increased competition, longer smartphone cycles, all of which are adding to the dynamic. It’s really hitting everyone in this area.
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