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Morgan Stanley thinks China could surpass U.S. as Apple’s largest market

by Phil Hornshaw

China is currently Apple’s second-largest hardware market, seeing big-time growth in smartphone and tablet sales during the last year. But a new report suggests it’s only going to keep getting bigger.

A survey conducted by Morgan Stanley found that interest in Apple’s iPhone has surpassed that of Nokia’s 3G smartphone offerings, the former leader in the country. The report finds that, for Chinese users’ next handset, more than a third of respondents prefer the iPhone, which is more than twice the nearest competitor, Nokia. The financial firm suggests that China, currently Apple’s second biggest market, could eventually surpass the U.S. to become its biggest business region.

Apple Insider has the story, which details the 2,050-person survey that focused on Chinese mobile phone users living in urban environments and was conducted in September. The survey asked people what smartphone they planned to purchase (as opposed to what they had purchased), and found that Apple’s iPhone was the choice of 34 percent of respondents, an increase of 6 percentage points from a survey conducted six months earlier.

Nokia, the former leading smartphone manufacturer in the country, dropped to 16 percent of planned purchases among respondents, a decline of 8 percentage points. Samsung ranked third and Motorola fourth among brands respondents said they were looking to buy.

Apple said during its quarterly earnings call earlier this month that China has quickly become a huge market for the technology company. In the quarter ending in September, the China region (which includes Hong Kong and Taiwan) accounted for 16 percent of Apple’s revenue with $4.5 billion in sales. It made up 12 percent of Apple’s total revenue for 2011, $28.7 billion.

Morgan Stanley notes that during the last quarter of 2011, the iPhone chunk of phone purchases in China dropped from 12 percent to 7 percent. Like Apple, the firm points to the iPhone 4S as the culprit. It launched just two weeks after the end of the last quarter, and iPhone 4 demand all over the world was less because of the impending launch. Apple itself reported it sold 3 million fewer iPhones in its last quarter of fiscal 2011 (17.1 million units) than it did during the same time the year previous (20.1 million units) because buyers were waiting for the new model.

According to the survey, the popularity of the iPhone 4 is also driving the popularity of other Apple devices in China. Morgan Stanley found that of Chinese iPhone users, nearly 35 percent also use Mac computers, compared to just 9 percent of the general, non-iPhone-owning Chinese population. More than double the amount of people who own iPhones also own iPod Touches, the survey found, 63 percent, compared to 30 percent using iPods without also owning iPhones.

Apple already knew that it was seeing good things for its business coming out of its increased presence in China, but the Morgan Stanley findings definitely suggest things will only get better. Whether China will surpass the U.S. as the top market for Apple products remains to be seen (we’re probably going to need some more data to draw that conclusion), but it’s clear that Apple’s investment in the country is paying off.