The last couple of months have been a roller-coaster ride for Apple (NASDAQ:AAPL). Although the recent iPhones have been successful, investors were disappointed this month as the company has not been able to strike up a deal with China Mobile. Further, there were rumors that investors wanted Apple to acquire Nuance, but these rumors are fading away with fresh news suggesting that Apple is trying to cut ties with Nuance to develop its own voice recognition system.
Also, Apple's loss of market share in Europe and China has also been a concern.
However, investors are finally breathing a sigh of relief. During the worldwide launch of Apple's new iPhones, the company managed to sell a record nine million phones in just three days. Clearly, management's move of adding China to its list of first-day receivers of the iPhone worked wonders.
In comparison, Apple had sold five million iPhone 5 devices last year in the same time span, primarily because consumers in China had to wait roughly three months after the initial launch in the U.S. to get their hands on the iPhone 5.
The sales record shattered the estimates of even the most optimistic analysts. It was widely assumed that the new iPhone 5c was designed to target China's fast-growing middle class populace, but the survey report of Localytics tells a whole different story. As per the survey, 91% of the Chinese people preferred the luxurious iPhone 5s over iPhone 5c, far more than the worldwide average preference rate of 78%.
The fact that the iPhone 5c is being sold for a price just $100 less than iPhone 5s makes you wonder what would have happened if Apple had actually launched an economical version of the device instead of iPhone 5c, which to be honest, isn't cheap at all. Consequently, sales of the colorful iPhone 5c have suffered and the device is already being sold at a discounted price.
The massive potential of the world's most populous nation has given rise to intense competition. Over the years, Samsung has been Apple's major competitor in China. Google's Android was the primary reason why Apple's Greater China segment didn't witness a year-over-year hike in sales of the iPhone. This was the sole segment which failed to post an increase in sales of the device.
A domestic competitor -- Xiaomi -- may make things even more difficult for Apple. A few weeks ago, the company unveiled its next flagship device, the Mi3. Mi3 will be the first smartphone to feature Nvidia's (NASDAQ:NVDA) Tegra 4 processor. Though it's a flagship model offering top features, its most basic model will cost $327, which is almost half the price of the iPhone 5s.
Also, Xiaomi is not focusing completely on the high-end market. In fact, when the company launched its cheapest device called "Red Rice," it sold the first batch of 100,000 phones within 90 seconds. Prior to the launch of the new iPhones, Xiaomi was already selling more smartphones than Apple and due to the extremely cheap price of the company's smartphones, this trend may well continue.
Furthermore, in the second quarter, Xiaomi surpassed Apple to take sixth place in China's smartphone market. Evidently, this scenario will change given the stellar sales of the new iPhones, but Xiaomi will do all it can to sustain its growth. Last week, Xiaomi even declared the opening of a new flagship store resembling Apple, in Beijing. All these moves on the part of Xiaomi and the fact that the company has a good following in China could help Nvidia push up sales of the Tegra processor.
What does it mean for Nvidia?
Nvidia has been putting in a lot of effort to profit from the booming smartphone market; however, the company's efforts have been in vain. The company's share price is off 57% from all-time highs and a dismal quarterly performance has added to the misery of investors. In the second quarter, Nvidia reported a dip of 6.4% in its top line, while on the earnings front, the company's EPS declined 15% to $0.23.
After a huge drop in the shipments of the Tegra 3 processors, Nvidia has pinned its hopes on the Tegra 4 processors. Winning the slot for the processor in Xiaomi may be a game-changer for Nvidia. Xiaomi is planning to expand globally and the company made news when it was able to acquire the services of Hugo Barra, the Vice-president of Android product management. At present, Xiaomi is planning to expand its presence to only three markets worldwide, which isn't bad considering its impressive rise in China.
Nvidia's Tegra 4 processors will launch with China Mobile. This is good news for Nvidia as China Mobile is the world's biggest telecom operator as it allows access to 744 million users. In addition to that, Asus launched a Tegra 4-powered premium tablet last month. All these moves might help Nvidia recover its business going forward. Analysts expect the company's earnings to drop a substantial 21% this year, but the expectation for next year is a lot better. Nvidia's earnings are expected to grow 12.70% in fiscal 2015 and this might be a possibility considering the traction the company is gaining in China.
Apple not a Lost Cause in China
Apple has not announced a deal with China Mobile yet, but there are many rumors suggesting that the deal is inching closer. Being the world's largest carrier, China Mobile will provide Apple access to roughly 744 million new customers. Posters leaked last week suggest that China Mobile is probably getting ready for an advertising campaign to promote the iPhone. Certain analysts (according to CNBC) expect Apple to ink a deal with China Mobile in November, just before the holiday season. This move will, in all probability, give Apple a big boost. However, for the time being, Xiaomi, which already has a deal with China Mobile, will try to do everything to continue rising up the ranks.
Apple's latest iPhones have been successful and a deal with China Mobile should enhance sales further. However, Nvidia is also making some positive moves in China, primarily with its recent win at Xiaomi. Hence, investors might even look at Nvidia as a way to play the fast-growing Chinese smartphone market since it has partnered with Xiaomi, which has a superior position in China and already has a deal with China Mobile.