According to statistics, Apple generates approximately 20 percent of its revenue from China, mostly from the sales of iPhones, and thus it is a significant market for the company. The Cupertino based giant had previously lowered its revenue guidance in China, citing the country’s poor economy as a reason. Later on, Apple slashed the prices of its current lineup by nearly 6 percent in China, including the iPhone XR which made its phones relatively more affordable. According to a new report, the price cut has helped the company and it may need to reduce prices even more in the future.
Analyst Expects Apple to Cut the Price of iPhones by up to 20 Percent in China in Order to Avoid a ‘Code Red’ Situation
Let alone the iPhone XS and iPhone XS Max, even the iPhone XR costed more than Chinese flagship offerings from when it was first introduced. This dealt a blow to the demand and Apple consequently reduced the wholesale price of the 2018 iPhones in the region. According to Daniel Ives, analyst of Wedbush Securities, the demand for Apple’s cheapest 2018 iPhone XR in slowly increasing in China, thanks to the price cuts, which was partially carried out due to the reduction of VAT in China in an attempt to boost the economy.
However, the analyst says that the company will have to reduce the price further, by as much as 20 percent, to keep the demand afloat and help vendors clear their inventory over the summer before the 2019 models are released. Although the price cuts must have negatively affected the iPhone maker’s bottom line, Ives termed it as a smart strategy that was the need of the hour.
By reducing the price of its phones, Apple will not just be able to boost demands, it will also be able to rake in more services revenue, says Ives. A huge chunk of Apple’s revenue comes from its services business such as App Store, Apple Music, and iTunes.
In the last quarter of 2018, Apple’s market share in China was 11.5 percent, which is lower than that of Huawei, OPPO, and Vivo. However, Ives has maintained a positive outlook for the shares of Apple and has increased his price target from $215 to $225. We’ll have to wait and monitor if Apple will be privy to further price cuts, so stay tuned for more updates from our side.
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Source: Seeking Alpha