Apple (AAPL) To Open Two More Research Centers In China

Apple Inc AAPL is looking to establish a couple of more research centers in China as demand for its flagship offering, iPhone continues to face stiff competition from local players, reported Bloomberg.

The new centers will come up in Shanghai and Suzhou. Last year, the company had announced setting up of two research centers in Shenzhen and Beijing. The R&D centers are likely to commence operations in the latter half of the year. Earlier, the company also invested significantly in the market ($1 billion in the ride-hailing company DidiChuxing) and also opened more retail stores in the region (at the end of the first quarter there were over 40 stores). 

China is the second largest iPhone market but Apple faces tough competition from cheaper locally manufactured smartphones. This, coupled with persistent macroeconomic weakness, caused Apple revenues to decline 12% year over year in the Greater China region to $16.2 billion in the last reported quarter.

Though the last few quarters have been marked by sluggish growth, the company remains optimistic about the long-term growth prospects of the region, especially given the hype surrounding iPhone 8

There is tremendous buzz surrounding iPhone 8 as it will be the first iPhone to support AMOLED (active matrix organic light-emitting diode) display. Also, the phone will have a big display screen at 5.8 inches. OLED display will also boost the phone’s battery life. The leap in display technology, among other innovations, has prompted analysts to label iPhone 8 as a “super cycle.”

A CNBC report observed “Committing money to China could give Apple some favor with the government but also helps it access the local knowledge and talent that's required to compete in the country.” Reportedly, Apple will be spending over half a billion dollars to boost its R&D efforts in China.

Apple CEO Tim Cook will be in Beijing tomorrow to attend a high-profile conference which includes government officials as well as chiefs of various multinational corporations.

Zacks Rank & Share Price Movement

Apple carries a Zacks Rank #3 (Hold). In the past one year, Apple’s shares have registered growth of 32.81% compared with the Zacks Internet Services industry’s gain of 31.98%.

Stocks to Consider

Better-ranked stocks in the wider technology space include Tech Data Corp TECD, PC Connection, Inc. CNXN and Leaf Group Ltd LFGR. While Tech Data sports a Zacks Rank #1 (Strong Buy), PC Connection and Leaf Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the trailing four quarters, Tech Data, PC Connection and Leaf Group have yielded positive average earnings surprises of 8.73%, 1.22% and 27.94%, respectively.

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