China’s smartphone vendors and component makers will get a boost in 2017 on the back of another product replacement cycle spurred by Apple’s launch of a new iPhone. Apple is expected to incorporate substantial upgrades in the upcoming iPhone 8 to celebrate the tenth anniversary of the launch of the first iPhone in 2007, after receiving mediocre consumer response to the four previous models due to minimal enhancements, according to Joseph Ho, analyst at GF Securities (Hong Kong). “We expect a strong iPhone replacement cycle among Apple’s over 500 million users, similar to the momentum seen in September 2014 when Apple ditched Steve Jobs’ old doctrine and adopted large displays for the iPhone 6 and iPhone 6+,” Ho wrote in a research note. iPhone’s substantial upgrades will drive volume growth for China’s components makers given that these features will be adopted by other competitors, he said. The debut of dual cameras in the iPhone 7+ three months ago, for example, has pushed that feature into the mainstream for all smartphone makers. “Over time, this will double demand for image sensors, lenses, VCMs [voice coil motors] etc. We also expect an uptick in adoption of fingerprint recognition features in 2017, which can be used to facilitate electronic payments,” Ho said. Beneficiaries of the feature upgrades include ASM Pacific, AAC Tech and Q Tech, he said. Hong Kong-based ASM Pacific manufacturers active alignment machines used in the production of dual camera modules. Chinese consumers are losing loyalty to the iPhone, which also helped Oppo and Vivo’s growth Rex Wu, Jefferies analyst GF Securities set a target price of HK$78.12 for ASM Pacific, given its 22 times price to earnings ratio based on the 2017 earnings per share estimate. The shares closed at HK$78.85 on Wednesday. Morgan Stanley gave the firm a “Buy” rating and set the target price at HK$90. AAC Tech, a supplier of acoustic components and haptics technology, will be the main beneficiary from the iPhone replacement cycle as Apple is its single largest customer, Ho said. Q Tech, meanwhile, is a small cap company that will benefit from the rise in the adoption of dual cameras and fingerprint recognition in the smartphone industry. “We maintain our ‘Buy’ rating and target price of HK$4.70, based on a target P/E of 15 times of our 2017 EPS estimate,” Ho said. The target represents an 18 per cent upside from its Wednesday close of HK$3.99. The iPhone replacement cycle will also benefit Chinese smartphone brands next year, especially Oppo and Vivo, Jefferies analyst Rex Wu wrote in a research note. Oppo and Vivo were the best performers in China’s smartphone market this year, thanks to their strength in offline channels, and the momentum is likely to be maintained in 2017, Wu said. By October, Oppo had already sold 55 million units in the offline market, approaching its full year goal of 80 million. Oppo expects to double the volume to 160 million units in 2017 by leveraging the smartphone replacement cycle and overseas expansion, Wu said. Oppo and Vivo’s strength in offline channels needs to be maintained. Sales through offline channels made up 76 per cent of China’s smartphone market in the first half of this year. Oppo’s market share in the offline market expanded from 12.4 per cent at the beginning of the year to 17.7 per cent in October, while Vivo’s share grew from 11.9 per cent to 15.9 per cent in the same period. “Chinese consumers are losing loyalty to the iPhone, which also helped Oppo and Vivo’s growth,” Wu said. Oppo and Vivo’s user bases in China had increased to 133 million and 118 million respectively by the end of September, reflecting ample room for growth given Huawei’s user base of 178 million, Xiaomi’s 157 million and Samsung’s 105 million, which is in decline.