Apple has seen robust sales in China despite the country’s worsening economic situation. Last quarter, revenues from Greater China grew 99% year-over-year, confirming the management’s opinion that China sales have been strong. Chinese economic slowdown concerns have emerged yet again and it remains to be seen whether Apple will continue its strong performance in the region.
In its latest note to investors, BofA/Merrill Lynch contends that Apple should open more retail stores in China if it wants to increase market share in the country. The idea is based on Merrill Lynch’s survey of 1,000 respondents across China, which was done to find a correlation between retail store presence and iPhone share/iPad ownership in the region.
Through a regression analysis, the firm found high correlations between retail store presence and iPhone share and iPad ownership. Of the survey respondents, 24% own iPhones while 39% said that they intend to buy one, which shows that Apple could gain further share.
Merrill Lynch notes that Apple currently has 26 outlets opened in 11 regions across mainland China. The company intends to increase that number to 40 by the middle of this year. Apple has also announced that it will open two more retail stores in January in Guangzhou (Guangdong region) and Nanjing (Jiangsu region). The firm’s analysis suggests that the four new store launches in January can generate an additional 2.99 million units.
“We believe these store openings could lead to incremental iPhone units sold in the regions and help Apple continue to increase share in broader China,” analysts at Merrill Lynch said.
In a prior research note, Merrill Lynch had upgraded Apple shares from Neutral to Buy. The firm said that its upward revision in the rating was based on the launch of iPhone 7, potential roll-out of iPhone 6c (5e), and increase in capital return program in April.
Apple is expected to release its first quarter fiscal year 2016 (1QFY16) results after the markets close on January 26. The tech giant is expected to report revenues of $76.7 billion and adjusted earnings per share (EPS) of $3.24. Merrill Lynch expects Apple to post strong China sales.
Chinese stocks dropped significantly last August, pointing to slowing growth in one of the world’s biggest economies. Questions were put forth regarding iPhone’s growth in the region at that time. In response to this, CEO Tim Cook told investors that China business has remained robust.
In the last earnings call, Mr. Cook told the Street that he doesn’t believe Apple’s results in China are heavily dependent on small changes in growth in its economy. He further stated that in light of the number of customers coming into Apple stores and sales trends, it is hard to say that there is an economic slowdown in the country.
According to the data from Strategy Analytics, China currently comprises 20% of Apple’s total iPhone unit sales. Hence, if Chinese sales are strong, it is very likely that Apple could overcome the tough comps set by the highly successful iPhone 6 and 6 Plus lineup.
