Apple Needs China For A Huge 2019

China has been one of the biggest concerns for Apple, Inc. (Nasdaq: AAPL) investors in 2018 due to the escalating international trade war. If AAPL stock is going to continue its march higher in fiscal 2019, analysts say China will play a critical role.

GBH Insights head of technology research Daniel Ives says there are 350 million iPhones around the world that will be in need of an upgrade within the next 18 months. If Applesuccessfully captures the majority of these potential upgrade customers with its next generation of devices, the surging demand coupled with record-high average sales prices could create an earnings boom for Apple.

Analysts are estimating 220 million iPhone unit shipments in 2019, but Ives says that number could prove to be conservative if the next-generation iPhones are good enough to get fence-sitters to go ahead and upgrade.

“The main swing factor in our opinion looking ahead is China as we estimate over a 100 million iPhone installed base in this key region, with over half of these consumers due for an upgrade during the course of [2019],” Ives says.

Ives estimates that as many as 70 million out of those 100 million iPhones in China are part of his 18-month upgrade window.

Up to this point, U.S. trade tensions with China have not significantly impacted Apple’s numbers, but Ives says trade developments over the next two months will be particularly critical for Apple.

“We believe this issue so far is contained, however [it] will be a key dynamic we will be keeping a very close eye on over the next six to eight weeks as the iPhone enters its pivotal launch phase,” Ives says.

Ives says the new iPhones should also help drive Apple’s high-margin Services segment growth as well. He says Services revenue could top $50 billion by fiscal 2020, and a larger mix of Services growth should help boost Apple’s overall margins and potentially lead to earnings multiple expansion for AAPL stock.

AAPL stock is up 37.6 percent year-to-date, but Ives says there’s plenty of upside remaining if Apple executes well throughout the next iPhone cycle.

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