Middle-Class Chinese Say A $1,000 iPhone Is "Too Expensive"

Apple Inc. had hoped that its iPhone eight might demolish the company’s sales records in China as the country’s burgeoning middle class embraced the phone, thanks in part to its name: Eight is considered a lucky number in Chinese culture, signifying wealth and fortune.

Unfortunately for the world’s most valuable company, this calculus isn’t playing out as well as its massive marketing operation had hoped for one simple reason: The price of the phone is simply too high for most members of the company"s target demographic.

However, Apple investors reacted positively to news Monday that the company"s iPhone 8 would be priced at $1,000 a unit. AAPL was up nearly 2% in early trade.

Two versions of the iPhone 8, along with a third premium model known as the iPhone X, will be officially unveiled at its product launch in Cupertino tomorrow. Details on price points of the new devices and their availability dates are still unknown, though even the cheapest of the latest top-of-the-line model is expected to cost about $1,000.

Unfortunately, the bulls could be a little short-sighted, especially considering that signs of slowing sales in some of Apple’s key growth markets have weighed on its share price in the past.

To wit, Reuters reporters spoke to regular Chinese citizens about the new iPhone – specifically, whether they intended to buy one. For Apple, their response was discouraging.

Here’s Reuters:

“Chinese shoppers, however, are already counting the cost, with the latest model tipped to have a price tag upward of $1,000 - roughly double the average Chinese monthly salary.

…

“I’ll wait for a drop in price, it’s too expensive,” said Angie Chen, 23, a project manager in Nanjing and iPhone 6 owner.

Chen said she might even wait for the new phone’s successor, when prices will fall. “It’s a nice number to hear, but there’s no rush.”

As Reuters points out, Greater China, which (according to Apple’s definition) includes Taiwan and Hong Kong, accounted for roughly 18 percent of iPhone sales in the quarter ended in July, making it the company’s third-largest market after the US and Europe. Meanwhile, the iPhone’s share of China’s smartphone shipments fell to 9% between January and June, down from 14% in 2015, according to data from Counterpoint Research.

Compounding the problem for the company is the fact that some analysts expect China to be a key driver of sales growth. Morgan Stanley analyst Katy Huberty told Bloomberg that she is watching for especially strong growth in China after the upgradeable, 2-year old iPhone base grew 56% this year, meaning more consumers are choosing to buy successive iPhone models.

Yet sales in China are down 10 percent from a year earlier, extending a nearly three-year series of declines. That contrasts with growth in all other regions. And although the Chinese currency has risen sharply against the dollar in 2017, a dramatic reversal of those gains could be imminent after Chinese authorities eliminated a requirement that sales desks set aside 20% of their revenues from sales of FX derivatives. The policy was intended to make it too costly to short the yuan, helping the PBOC fend of speculators as it sought to slow the currency’s depreciation against the dollar last year. But now, the central bank has ostensible switched off the “no” in the “no vacancy” sign at the yuan short-seller’s motel. And predictably, the yuan saw its largest drop in eight months overnight as the bears piled back in.

All of this means the phone will be more expensive for consumers, further suppressing sales as Chinese consumers stick with popular domestic brands like Xiaomi. But even with the company’s shares trading near all-time highs, despite reports of production problems that could limit supplies of the new models, whether or not another slowdown in China will actually impact the company’s shares remains to be seen.

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In a preview of tomorrow"s product launch, several Apple analysts told Bloomberg what they felt would be the biggest reveals during CEO Tim Cook"s highly anticipated presentation. In terms of new features, while investors will certainly pay close attention to the iPhone"s hardware, the change that has the most significance with long-term implications is the addition of 3D-sensing capabilities that enable augmented reality applications, Gene Munster said.

While AR applications will be backward compatible to the 2015 iPhone 6S, the addition of designated 3D and computer vision hardware on the premium iPhone would be a “big step toward putting AR in the hands of everyday users” and a big step toward the “next generation of computing - beyond the smartphone," according to Munster via Bloomberg.

Performance of facial recognition on the OLED iPhone will be widely scrutinized, as the device probably won’t have a fingerprint sensor for login and Apple Pay usage, according to KeyBanc analyst Andy Hargreaves.

According to RBC analyst Amit Daryananianother, recent surveys suggest “sizable pent up demand” and excitement around the iPhone launch. With more of the hundreds of millions of iPhone users around the world expected to upgrade their devices this year, Daryananianother said the company could experience a "sales supercycle."