Chinese commuters. Wu Hanren/AP Photo

Happily for Apple, demand for the next iPhone "should be stellar," says UBS' Milunovich.

By Philip Elmer-DeWitt
July 8, 2014

“Two events overnight suggest that smartphone pricing in China’s high-end market could come under some pressure,” writes UBS’ Steve Milunovich in a note to clients Tuesday.

I quote:

  • First, Samsung’s pre-announced results indicate share loss in China, contributing to a sequential double-digit ASP [average selling price] decline on more mid/low end devices and aggressive pricing.
  • Second, as reported by Bloomberg … China’s State-owned Assets Supervision and Administration Council (SASAC) may be ordering telcos to reduce their sales and marketing costs by 40 billion Yuan [$6.4 billion] or about 20%, out of which handset subsidies likely amount to more than one-third.

.

Nicolas Gaudois, UBS’ man in Hong Kong, says Samsung is cutting prices to put the squeeze on China’s homegrown Android smartphone makers, hoping to win back some of that share loss. He’s concerned that Samsung’s 15-20% share may not be big enough to drive the market.

Meanwhile, a 33% cut in Chinese carrier subsidies would slow sales across the high end market, which is where Samsung does some of its Chinese business and where Apple AAPL does all of its.

UBS estimates the high-end (+$500 w/VAT ) represents roughly 20% of Chinese smartphone sales, of which Apple had a 33% share in 2013.

“The good news for Apple,” writes Milunovich, “is that demand for the iPhone 6 should likely be stellar, offsetting slow market growth with share gains.”

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple coverage at fortune.com/ped or subscribe via his RSS feed.

You May Like