Evercore: While China’s smartphone market slows, Apple’s share grows

From a note to clients by analyst Amit Daryanani that landed on my desktop Wednesday:

ALL YOU NEED TO KNOW: May smartphone data points to an overall slowdown in the smartphone market for the month though is a stronger data point for AAPL. The smartphone data suggests iPhone units were up +35% y/y in the month of May (+37% m/m). We would add that while this month’s overall results mark continued deceleration from the steep growth trajectory seen in smartphones in January to March, those three months of shipments were up an impressive 102% vs. the same three month period in 2020, pointing to more durable broad-based strength and suggesting the slowdown in April and May more likely constitutes a pause than the beginning of a longer-term slump. Taking a broader look at the overall smartphone market in China, the data shows deceleration as shipments shrunk by -30.7% y/y and -16.3% m/m. The data set includes shipments broken down by domestic vs. multi-national companies. Apple accounts for greater than 90% of the multinational (MNC) shipments, so it serves as a reasonable proxy now that shipment data is no longer broken down by operating system. In Apple’s Mar-qtr print, we saw the company achieve 67% growth in iPhones, and the monetization narrative that is now just starting to take hold could drive sizable upside.

Net/net: The data point shows sustained strong growth out of China despite a softer overall smartphone market. Furthermore, we expect growth to remain strong for AAPL in Jun-qtr and beyond as the company benefits from a trifecta of – iPhone growth in N. America (stimulus + reopening), ecosystem expansion, and monetization of their install base.

Maintains Outperform rating and $175 target.

Below: MNC (read, Apple) shipments performed notably better than the broader market with y/y growth of +35.2%.

evercore apple china share

My take: If this report sounds familiar, that’s probably because the data have been trending this way for several months now.

16 Comments

  1. Randy McCleary said:
    Supply Chain management of chip shortages wins the day. Domestic handset providers can’t get their product to market. Thus, the only thing on the shelves gets purchased by otherwise cost conscious buyers. -RJ

    7
    June 16, 2021
    • David Emery said:
      Add to that, the continued ‘status appeal’ of an iPhone in the China market. If you want a higher end device, the iPhone could well be the only choice if the other options aren’t available.

      3
      June 16, 2021
  2. Fred Stein said:
    This shows Apple’s strength well into the future.

    Many are customers-for-life. And customers for add-on products.

    Imagine how India plays out over the next decade.

    6
    June 16, 2021
    • Kirk DeBernardi said:
      @ Fred Stein —

      re: India

      Luke Skywalker to Hans Solo:

      “More money than you could imagine.”

      Hans to Luke:

      “I dunno kid. I can imagine a lot.”

      3
      June 16, 2021
    • Jerry Doyle said:
      @Fred Stein: As you note, India is dear to Apple’s future strategic plans. India has a young population. Half of its 1.3B are under 25. A little over 30% are less than 16, not yet working age. Demographers predict India will become the most populous nation on Earth by 2030. Also in 2030, economists predict India will surpass Japan to become the world’s 3rd largest economy after the US & China. And in 2030, India will have by far the largest workforce in the world because 68% of its population will be of working age. In other words, India will have 986 million working-age people in 2030. Demographers call this a “demographic dividend” phase, a kind of demographic sweet spot that normally helps a nation’s economy grow faster because its large economically active cohort tends to have a higher savings rate & higher investment level at the same time that it has more income to spend on consumer goods. Demographers say that, all things being equal, economies boom when countries have larger labor forces, just as the American economy boomed after baby boomers entered the workforce.
      Continue….

      3
      June 16, 2021
    • Jerry Doyle said:
      Continued….
      In summary, Apple’s potential success in India is propitious. US companies are selling more products in India for 2 reasons: Indians have more money to spend & India is opened more to the outside world with its middle class adopting some elements of Western culture. The cultural center of gravity for India’s yuppies leans toward the US. American brands also are coveted.

      Caveat: Much depends on how soon India modernizes its infrastructure. Until more roads are built to connect factories with ports & railways, then factories are unlikely to see a China style export boom creating millions of Indian jobs. India is at a critical juncture. If the nation fails to create jobs for its fast-growing population of workers, it risks being mired in poverty & hopelessness. So, India must further reform its economy & modernize the nation’s infrastructure, encouraging Indian companies to grow while attracting foreign built factories to create jobs at home, the same as China did successfully two decades ago.

      3
      June 16, 2021
      • Bart Yee said:
        Agree, India is on the cusp of much greater foreign investment in Indian jobs and Indian made versions of goods like Apple, Wistron, Pegatron and Foxconn have created factories for to offer to the Indian Market and potentially for export. Their nationalistic policy of greater local content and labor forced foreign companies to set up factories and recruit labor. As usual though, there still is corruption, bureaucracy, and competing laws and tariffs to navigate through, but like China, the Indian market is so vast as to be impossible to ignore.

        1
        June 17, 2021
        • Jerry Doyle said:
          @Bart Yee: “…. As usual though, there still is corruption, bureaucracy, and competing laws and tariffs to navigate through, but like China, the Indian market is so vast as to be impossible to ignore.”

          Correct, Bart Y. It is for this reason I wrote in my comments: “So, India must further reform its economy & modernize the nation’s infrastructure, encouraging Indian companies to grow while attracting foreign built factories to create jobs at home, the same as China did successfully two decades ago.”

          My excitement over India’s potential bright future (and Apple’s in India) is fear of the corruption, the labyrinth bureaucracy & regulatory, tariffs disincentives of which you so correctly denoted. China’s authoritarian government under the control of the CCP allows for streamlining in a multiplicity of ways. If China desires to build an airport, it can do so in a year. If India desires to build an airport, it may take 20-30 years. If India fails to reform its economy, modernize its nation’s infrastructure & encourage Indian companies to grow all while attracting foreign built factories for creation of jobs at home, then it risks being mired in poverty & hopelessness. That is my fear.

          1
          June 17, 2021
  3. Adam Foster said:
    What just happened to aapl?

    0
    June 16, 2021
    • Bart Yee said:
      @Adam Looks like a big spike in volume precisely at the time the drop occurred so could be a few bigger investors unloaded shares and triggered a bit of a sell off. Tied to Fed inflation and rate comments or other news? Maybe. But dip only lasted about an hour and AAPL has recovered and is green again going into the last 45 min of trading.

      0
      June 16, 2021
      • Gregg Thurman said:
        I missed my opportunity to get in for this week, so I placed a stink bid for next week’s $127/$128 Call Spread. The order was filled during that very brief sell off.

        0
        June 17, 2021
  4. Daniel Epstein said:
    Fed Reserve talk about raising interest rates in 2023 causes drop in stock market today!

    1
    June 16, 2021
    • Daniel Epstein said:
      And about an hour later the stock price has mostly recovered as the momentum from the Federal Reserve news is digested and the move subsides.

      1
      June 16, 2021
  5. Bart Yee said:
    It was interesting to me to review the NYT article (I’ll not post the direct link or the PED blog post) about the “compromises” Apple management has to address in order to comply with Chinese laws, rules, regulations and governmental influences in order to operate in China. For Apple to address the 1.4 billion (of which probably 700 million are of age/economic consumers?) potential market, this is what Apple must do to have a presence there. A similar situation is already unfolding in India. Like the Chinese, Apple has a long view of what they can and cannot do in China and chooses to engage by offering products, services, and at least a Western influence to Chinese consumers.

    It was interesting to note the “disgust” of some NYT commenters who swore/swear off Apple products for their China dealings, a relative drop in the bucket numbers wise to the China consumers who, in aggregate, could eventually eclipse the Euro market and approach the US market.

    I suspect in time, maybe not long from now, we will be reading about similar “compromises” Apple management will have to make in order to “comply” with (newly created) EU/US laws, rules, regulations and “**GOVERNMENTAL INFLUENCES**” in order to operate in the EU/United States.

    2
    June 16, 2021

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