“Everyone knows the iPhone was critical to Apple’s success from a product perspective. From a market perspective, the financial media has not given a lot of coverage to the reason for Apple’s resounding earnings beat,” Bob Ciura writes for Seeking Alpha. “Apple owes a lot of its success last quarter to China, which is the biggest geographic opportunity for the company going forward, by far. Apple’s growth in China is truly amazing, but there have been a number of articles lately raising fears about the perceived threat of cheaper devices eating into Apple’s market share. Most notably, concerns of competition from privately-held Xiaomi have gotten a lot of attention.”
“Now that we can see exactly how Apple performed last quarter in China, it’s clear that the Apple bears were completely wrong,” Ciura writes. “The idea that cheaper devices that mimic the iPhone would steal away sales from Apple was flawed from the start. To me, it demonstrated a misunderstanding of consumer behavior. I felt it was a mistake to assume electronics were some sort of a commodity, where consumers made their decisions based solely on price. Price is a driver for some, and that helps explain Xiaomi’s growth. But for most customers, value, differentiation and brand quality are more important aspects of the decision-making process, particularly when it comes to smartphones. And, for those whose primary driver is in fact price, they most likely would not have purchased an Apple device anyway because they could not afford one. This is why Apple was never truly in danger from cheap copycats such as Xiaomi.”
“On the earnings call with analysts, Apple stated its ASP (average selling price) for iPhones actually went up last quarter, by $50 per device, from the previous quarter. Clearly, the brand remains incredibly strong,” Ciura writes. “Xiaomi may look and feel like an iPhone, but the bottom line is that it isn’t an iPhone, and buyers know this. Only Apple can provide the ecosystem and customer experience that makes the brand so valuable. This is not to say that Xiaomi has not been successful. Indeed, the media recently reported that Xiaomi passed Samsung to become China’s second-largest device seller (behind Apple). But Xiaomi will never steal customers from Apple. It’s stealing customers from other device makers at lower price points, like Samsung and Lenovo.”
Read more in the full article – recommended – here.
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