Can Apple Size Up in China?

On a trip through China and Taiwan, Topeka Capital analyst Brian White noted the people’s particular affinity for larger smartphones and saw Apple’s (NASDAQ:AAPL) iPhone is not satisfying those tastes.

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White went all around on his trip, visiting companies and trade shows. He saw Apple and Samsung (SSNLF.PK) at the top of the ladder when it comes to high-end smartphones in China and Taiwan. But, apparently, the consumers in those regions have a particular preference toward phones that fall into the “phablet” category, which have screens with more than 5-inch diagonals.

The screen issue is something Apple has addressed clearly before, affirming that the size of the current iPhone 5 is the perfect size. CEO Tim Cook was heard discussing the iPhone 5′s screen size and said, “We’ve put a lot of thinking into screen size and we think we’ve picked the right one.”

A recent report on sales and usage of smart devices of varying form factors pointed out that the phablet category could actually just be a fad. According to the report, only 2 percent of devices were phablets, and only 3 percent of users used phablets, with just 3 percent of app sessions taking place on the devices…

Meanwhile, White claims that every single contact he got in touch with in the region said that consumers prefer smartphones that fit into the phablet category. This means that China could prove to be looking at phablets as more than a fad.

This presents a problem for Apple, as none of its iPhones fit into the phablet category, while Samsung does have phablet-size devices. If White is right about the consumer preferences, people shopping for high-end devices are likely to turn away from Apple and go for a phablet instead.

White has hopes that Apple will change its mind about screen sizes and release a phablet-category iPhone to appeal to the consumers who prefer the bigger devices. He has a Buy rating on Apple shares, but that may depend on the screen size issue in time…

Another problem that may pop up in China is the divergence in the wireless standards being employed by China’s main carriers. China Mobile (NYSE:CHL) is preparing a 4G TD-LTE network, while competitors China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) may be building 4G FDD-LTE networks. The difference could affect the phone business, as manufacturers will have to put in the right hardware to connect to the different networks. If Apple only supports one of the types, it could lose business at the other carriers, as it may not be able to draw users away from their carriers.

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Meanwhile, Samsung releases varying devices frequently and would likely be able to have devices ready for both network types in a short matter of time. This would allow the company to steal customers that Apple couldn’t get because of network troubles and screen size preferences. Samsung is already on top of the market in China, and Apple isn’t holding second. Further slips in sales for the iPhone maker could hurt, as China is one of the largest and fastest growing markets for smartphones.

Shares of Apple finished up 1.52% at $426.24 on Tuesday.

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