Apple's (NASDAQ: AAPL) business in China has languished in recent years following many years of strong growth. Local smartphone manufacturers continue to chip away at Apple's market share, thanks largely to lower prices. The company's Greater China segment is often a soft spot in quarterly earnings releases these days.
Before the official unveiling, Morgan Stanley analyst Katy Huberty went as far as to predict that the high price tag would help Apple's financial performance in the Middle Kingdom, hypothesizing that Chinese consumers were merely waiting for a form factor redesign. "High-end Chinese users want to buy Apple products, but the iPhone has not had a form factor change for three years," Huberty told Business Insider in August. "We believe that Chinese consumers are just waiting for that change."
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With iPhone X launching in just a couple of days, interest among Chinese consumers remains strong, but many simply may not be able to afford the new flagship handset.
iPhone X interest is high
Reuters and CNBC both reported on strong demand among Chinese consumers this morning, featuring several interviews with individual consumers who would love to purchase an iPhone X but find the price tag prohibitively expensive. In one example, the starting price of an iPhone X exceeded the consumer's monthly salary.
Echoing Huberty's emphasis on the external design, another consumer explained to Reuters why some aren't that interested in upgrading to an iPhone 8, stating, "My friends don't mind so much if they have an iPhone 8 or a 6, for example, because it looks similar, and the price [of the iPhone X] makes you feel nervous." CNBC notes that interest is strong on Chinese social media platforms, with many users wanting Animoji and Face ID.
Putting some numbers to it
These anecdotes come shortly after Bernstein analyst Toni Sacconaghi put out a research note (via Tech Trader Daily) last month highlighting a major discrepancy between interest and purchase intent. Sacconaghi conducted a survey (n = 1,112) of consumers in the U.S., U.K., and China. While there was a general disconnect between interest and purchase intent, the disparity was largest in China by far.
Overall, 48% of respondents indicated that they were "excited for the iPhone X," but only 24% intended to buy the new device. In China specifically, 73% of Chinese respondents said they were "excited for the iPhone X," but just 26% were planning to purchase it -- meaning that interest was nearly three times higher than purchase intent. Sacconaghi believes that the high price is hard to justify psychologically, and the economic reality is that many simply can't afford it. Consumers who make around $30,000 in U.S. dollars expressed a much higher 52% purchase intent.
Apple will enjoy some uplift in average selling prices (ASPs) as a result of the high price, allowing it to boost revenue on a smaller number of units. However, that high price looks like it could potentially limit unit volumes.
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