UBS Survey Shows Apple (AAPL) Strength in the US, Softness in China
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UBS analyst Steven Milunovich notes that the firm's Evidence Lab smartphone survey shows Apple (NASDAQ: AAPL) is seeing strength in the U.S. but weakness in China. The firm's semi-annual Evidence Lab Global Smartphone Survey of covered almost 6,500 consumers across five countries, the largest on the Street.
Milunovich commented, "Our March survey pointed to iPhone 7 interest between the 6 and 6s, which has been confirmed by surveys and search results since. This time we find higher overall smartphone purchase intentions the next six months with iPhone 7 interest especially strong in the US and rising demand for the Plus. However, China, is exhibiting signs of softness in F17, including lower interest in the 7 than the 6/6s. However, the Apple brand remains strong. We continue to model iPhone unit growth of 6% in F17 and 16% in F18."
The analyst notes the survey showed that many still aspire to own an iPhone. Positives for Apple where:
(1) almost half of US respondents are very or somewhat likely to purchase an iPhone 7, above even the 6 cycle two years ago;
(2) the US shows a shift toward the Plus with a 9-point rise over the 6s;
(3) Apple rates high in product uniqueness, and its customers are more concerned with design and less focused on price;
(4) global smartphone penetration of 60% and high aspiration in the US and China allow opportunity for new customers; and
(5) although Samsung's retention rate has improved, 30% of its customers were at least somewhat less likely to go Samsung.
Concerns for Apple include:
(1) although China interest in the 7 is not far behind the US, it is lower than China saw for either the 6 or 6s;
(2) Apple's retention rate fell in China though excluding users not planning future upgrades the rate held in--we model a single-digit decline in China units for F17;
(3) upgrade cycles are slightly longer, reflected in our assumption that only 43% of the base upgrades in two years vs a more typical 50-60%; and
(4) Apple fell in all categories of consumer perception.
The firm maintained a Buy rating and price target of $127 on AAPL.
Shares of Apple closed at $113.54 yesterday.
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