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Trade war

Wall Street finds Apple 'surprisingly stable' in China

Analysts point to larger share of users and opportunity in Huawei ban

Apple's smartphone installed base in China grew for a fifth consecutive month in May, Morgan Stanley says.   © AP

NEW YORK -- Wall Street analysts this week sounded a more optimistic tone on Apple amid widespread investor worries around the U.S.-China trade war's impact on the American tech giant.

Apple's share of China's smartphone installed base -- a metric measuring the number of devices actually in use -- continued to grow through May, said Morgan Stanley in a research note late Tuesday, adding that demand will remain stable throughout the summer.

"Investors feared further escalation would result in meaningfully weaker iPhone demand from Chinese consumers," said the note, written by a group of Morgan Stanley analysts led by Katy Huberty. "However, recent data ... shows May 2019 marked the fifth consecutive month of year-over-year China smartphone installed base share gains for Apple."

Factors in China including price cuts, lower sales taxes and higher consumer confidence compared to last summer contributed to "surprisingly stable" demand trends, the note said.

The analysts also noted that 53 publicly traded Apple suppliers based in Taiwan saw above-seasonal revenue growth in the last three months, which suggests stable demand ahead of Apple's new iPhone launch this September.

Similarly, a JPMorgan research report finds "investor concerns relative to Apple's share loss in China somewhat overblown."

"Challenges in China are concerning, but Apple is not new to navigating them," said JPMorgan analysts led by Samik Chatterjee in a report Monday, noting that new iPhone shipments had been on the decline in China even before U.S.-China trade tensions escalated.

Going forward, JPMorgan believes the China market, which represents a larger portion of Apple's app store revenues relative to contribution to iPhone unit sales, will add to revenue growth from Apple's services segment, which has emerged as the American tech giant's new strategic focus.

The investment bank also sees opportunity for Apple in the European market, where Huawei is behind only Samsung in shipments but faces continuing headwinds.

Huawei revealed Monday a $30 billion cut to its 2020 revenue forecast and projected a 40% fall in smartphone sales following Washington's ban on exports to the Chinese company last month. Earlier this year, Huawei overtook Apple as the world's second largest smartphone maker, according to IDC.

"We see increasing opportunity for [Apple] in developed markets, particularly in Europe, where the lower shipments from Huawei can drive market share opportunities," the JPMorgan analysts wrote.

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