Coming soon: 4-5 million Chinese iPhonesJanuary 29, 2010: 9:47 AM ET
A survey of high-end Chinese buyers suggests the Street has underestimated demand
Morgan Stanley's Katy Huberty -- a long-time Apple (AAPL) bear who seems to have switched her drink to Kool-Aid -- issued an optimistic report Friday about the Chinese market for iPhones. It includes scenarios by which she sees Apple's share price hitting $325 to $435 within a year.
(The stock closed at $199.29 Thursday, down more than 4% for the day, and then fell another 3.36% on Friday.)
Central to Huberty's "Bull Case" is a scenario in which iPhone sales -- which got off to a famously disappointing start in China -- hit a cruising speed of 4-5 million units per year and then accelerate dramatically when and if Apple introduces a lower-cost phone with a pre-paid plan.
Her findings are not that different from those of other China watchers, but they are probably based on better data -- the results of a survey of 1,050 Chinese consumers representing what calls "the core iPhone addressable market in China."
Huberty's key findings:
- The current installed base of unlocked iPhones in China (2 million) is already similar to the largest European and Asian countries, pointing to strong underlying demand at the high-end of market.
- We see an attractive addressable market in China of 50 million consumers, with strong interest in smartphones and the Apple brand.
- The survey indicates the potential for Apple to sell 4-5 million units annually in China over time.
- 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.
The report is supported by an array of charts, graphs and spreadsheets focused on that addressable Chinese market -- a population of about 50 million people (4% of the population) with an annual income over $20,000 and an average cellphone bill of $22 per month.
It's a market, she maintains, comparable to the U.K. (76 million) and Spain (53 million) -- with a difference:
"Importantly," she writes, "this 50M person addressable market has high smartphone and Apple product penetration rates relative to the market as a whole, according to our survey. We believe the survey responses indicate the interest and affinity for smartphones and the Apple brand among the high-end segment of the population in China."
Below: A selection of those supporting diagrams.
- China Unicom: 300,000 iPhones sold
- China: 100,000 iPhones in 40 days
- iPhone hardball and soft sell in China
- China iPhone launch a 'disappointment'
- Inside Beijing's iPhone black market
[Follow Philip Elmer-DeWitt on Twitter @philiped]