Monday, February 1, 2010

China iPhone: 4-5 Million Annual Unit Opportunity, Doubles with Pre-Paid Model

China iPhone: 4-5 Million Annual Unit Opportunity, Doubles with Pre-Paid Model

Our survey suggests room for significant iPhone
growth in China, contrary to consensus belief: The
market has largely written-off China as a source of
iPhone growth given the inherit structural limitations
(higher % pre-paid, lower income/ARPU), but our recent
survey of high-end Chinese handset users suggests that
it might be too early to discount the market entirely.

Key conclusions from our Alphawise survey:

1) The current installed base of unlocked iPhones in China (2 million) is already similar to the largestEuropean and Asian countries, pointing to strong underlying demand at the high-end of market.

2) We see an attractive addressable market in China of 50 million consumers, with strong interest insmartphones and the Apple brand.

3) The survey indicates the potential for Apple to sell 4-5 million units annually in China over time.
4) Importantly, we believe there is an opportunity for Apple to increase demand by 100%+ by introducing a lower-cost, pre-paid device and still generate 45-50% gross margins.

We surveyed 1,050 consumers in China to better understand underlying iPhone demand. We believe this survey represents the core iPhone addressable market in China and provides important insight into wireless spending habits and iPhone interest.

Where we differ: We continue to believe the market under-appreciates longer-term iPhone demand and that if Apple plays its cards correctly, 10%+ global handset market share (25% smartphone market share) is attainable in 3-4 years – implying bull case iPhone EPS of $23-32 depending on pricing/margin strategy.

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