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Apple's iPhone unlikely to recover eroded Chinese marketshare, analyst argues

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CEO Tim Cook once envisioned China as Apple's next big market, set to eclipse even the U.S. in revenue. That dream has taken a raincheck in the past two years, with iPhone units down 8 to 11 percent — and Apple is unlikely to bounce back, an analyst suggested in a memo obtained by AppleInsider.

Wall Street analysts were previously looking for a 15- to 60-percent unit recovery in Apple's fiscal 2018, but several obstacles are now in the way, said UBS's Steven Milunovich. Apple's primary iPhone market — the high end, above 4,000 yuan — is claimed to be "fairly saturated" in China, even though it consists of about 200 million to 300 million people.

Even then, Apple is facing stiff competition from local giant Huawei, and increasingly long customer upgrade cycles. The company is also being hobbled in smaller Chinese cities by weak distribution networks, and the fact that its cheaper phones use outdated features. Except for the iPhone SE, Apple has resisted releasing phones that are both new and inexpensive, preferring instead to discount older products.

Chinese iPhone sales will likely remain flat, with relatively little long-term growth, Milunovich predicts. Non-local smartphones — mostly from Apple — saw their shipments decline 16 percent in the March quarter, according to government data.

UBS is nevertheless maintaining a "Buy" rating for Apple stock, with a $190 price target. Indeed, the company's main global rival, Samsung, is doing poorly in China, having had its marketshare stolen by both Apple and local vendors.

Cook has tried to put a positive spin on its numbers. In Apple's most recent quarterly results announcement, Cook said the company was up 19 percent on an average weekly revenue basis, and set an "all-time record" for regional revenue. It's possible to grow income while still slipping behind in share, however.

Price competition could be a running theme with Apple's 2018 iPhone lineup. The company is thought to be working on two more OLED models, sized at 5.8- and 6.5-inches, but at least one analyst has suggested the former could cost $899, while the latter will take up the iPhone X's $999 price tag. A 6.1-inch LCD iPhone might be cheaper still, while retaining features like Face ID and an edge-to-edge screen.