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Apple Pay Launching In China As U.S. Adoption Stalls

Loading the player… Apple ( AAPL ) Pay will be available in China beginning this Thursday, with the consumer tech giant facing stiff mobile payment competition in the world’s largest smartphone market from Chinese Internet heavyweights Alibaba ( BABA ) and Tencent ( TCEHY ). Alibaba’s Alipay is China’s most popular online payment service, while Tencent has integrated payments into its WeChat mobile messaging app, much like Facebook ( FB ). And amid concerns of slowing iPhone sales, a new study says that U.S. adoption of Apple’s mobile payment platform has plateaued. First Annapolis, an electronic payments consultancy, says that some 20% of iPhone 6 owners report using Apple Pay at least once, while 15% say that they use it regularly or frequently. While awareness among iPhone 6 owners remains high at 84%, the usage figures are slightly down from last year. In the U.S., Apple faces competition from Samsung Pay and Alphabet ( GOOGL )-owned Google’s Android Pay. Samsung Pay was launched last fall and works not only with NFC (near-field communication) terminals like the Apple and Android systems but also with magnetic stripe terminals and chip-card terminals, which could allow for wider adoption. Still, Piper Jaffray analyst Gene Munster said at the start of the year that Apple is “overwhelmingly the share leader” in point-of-sale mobile payments. He expects new features like peer-to-peer payments and in-browser integration to further boost adoption in 2016. Shares are looking to continue higher with a 1.2% gain Wednesday after jumping 3% in heavy volume Tuesday. Apple is still in a downtrend, a little less than 30% below its all-time high reached last April. Alphabet advanced 1.8%. Apple stock could also be getting a boost from reports on Tuesday that it received a car-related patent for a mobile device sensor to “determine when the user is in a vehicle that is driving.” The news has sparked new speculation that Apple — along with Google, Tesla Motors ( TSLA ) and others — is working on a self-driving car.

Apple Debt Trajectory Could Pressure Credit Rating By End of 2017

With Apple readying a new bond sale to increase shareholder returns, Moody’s Investors Service says Apple ’s ( AAPL ) debt could top $100 billion by year-end 2017 on its current trajectory, which would put its Aa1 credit rating under more scrutiny. Apple is expected to tap the bond market for its fifth multi-billion dollar offering since 2013, when activist investor Carl Icahn stepped up pressure  for Apple to increase capital returns. Cupertino, Calif.-based Apple’s debt has shot up from $17 billion in fiscal Q3, 2013 to $63 billion in its fiscal Q1, ended Dec. 26. Apple is expected to add in a range of  $10 billion to $12 billion in new debt. In addition to Apple’s adjusted long term debt, Moody’s includes some $5 billion to $10 billion of commercial paper issuances that the company will likely use to manage its liquidity. The iPhone maker issued $8 billion in bonds in May to boost shareholder returns. Apple’s current $200 billion shareholder return program expires in March 2017. “Under the cadence established by the company’s capital return program, Moody’s calculations show an annual need of $15 billion to $20  billion in external funding or foreign cash repatriation to meet domestic  cash needs, which include shareholder payouts and acquisitions,” said Moody’s in a report. “Absent Apple repatriating its foreign-held cash, either due to tax reform or otherwise, the company’s adjusted gross debt balance could exceed $100 billion by the end of 2017. Although the company’s financial metrics will likely still be very strong, Moody’s believes that this level of debt and resulting leverage would pressure the Aa1 long term rating and/or the outlook given that Apple operates in a rapidly transforming technology sector.” Apple has some $216 billion in cash, with nearly 90% of it overseas. If companies tap overseas cash, it’s subject to repatriation taxes. With borrowing costs low, they’ve turned to the bond market. Apple stock has been pummeled on weak March-quarter guidance . Apple expects iPhone sales to fall year over year during the period, the first such drop since the introduction of the iconic product in 2007. A growing market for used, refurbished iPhones in emerging markets and the phasing out of iPhone subsidies by wireless firms in the U.S. could both be playing a role in Apple’s disappointing sales outlook. Credit rater Moody’s said in a report that it “also believes that the company will be challenged to maintain its historic sales growth momentum, as iPhone sales cycles elongate and iPad tablet units fall. Without a new blockbuster product in the near-term pipeline, Moody’s estimates that the company’s sales will likely be flat compared to 2015 results, even as cash generation remains robust.”  

Over Quarter Of U.S. iPhone Owners Still Use 4-Inch Handsets

More than two years since Apple ( AAPL ) shifted its focus to larger-screen iPhones (4.7-inch and 5.5-inch models), 26% of U.S. iPhone owners still use handsets with 4-inch screens, according to a December survey by Consumer Intelligence Research Partners. The Chicago-based research firm said 110 million iPhones were in use in the fourth quarter in the U.S., up from 100 million in Q3 and 78 million in the year-earlier period. Of the 110 million iPhones in use last quarter, 74% were iPhone 6 or 6S model handsets, CIRP said. They included 62 million iPhone 6 and 6 Plus units and 19 million iPhone 6S and 6S Plus units. The remainder (29 million) were mostly 4-inch iPhone 5C and 5S models. Apple continues to sell the iPhone 5S, a model that hasn’t changed since its introduction in September 2013. What isn’t known is how many of the current users simply prefer a 4-inch handset over the larger-screen models and how many have just not yet upgraded. Apple is about to find out. Apple is expected to introduce a new 4-inch handset, dubbed the iPhone 5SE, at a product launch event next month. The iPhone 5SE is rumored to include Apple’s latest A9 and M9 processors, an NFC (near field communication) chip for Apple Pay, support for always-on Siri activation, and the iPhone 6’s camera system, 9to5Mac reported . The iPhone 5SE likely will be introduced at a media event on March 15 and be available in retail stores on March 18, 9to5Mac said. Besides the new smartphone, Apple is rumored to be debuting its next-generation iPad Air tablet and new Apple Watch software and wristbands next month. Apple iPhone 7 Not Expected Until The Fall Apple isn’t expected to refresh its flagship smartphone lineup, with the iPhone 7, until this fall. That handset is expected to be thinner because of the removal of the headphone jack and have a larger screen because of the removal of the physical home button. Baird analyst William Power on Tuesday reiterated his outperform rating on Apple stock with a price target of 130, after conducting a survey about iPhone 7 demand. Apple stock rose 2.8% to above 96 on the stock market today , but it’s still down 23% from a seven-month high near 124 touched in November. “Based on our latest online survey, 7% of respondents claim they plan to purchase the iPhone 7, which is actually above the 4% planning to purchase the iPhone 6 in our February 2014 survey,” Power said in a research report. “An additional 14% are maybes, vs. 13% two years ago.” Baird surveyed 1,000 people in a U.S. online poll. “Notably, interest was greatest among recent iPhone purchasers, reflecting the ongoing upgrade opportunity,” Power said. “We view the results as directionally positive, particularly given the recent growth concerns.” About 21% of iPhone 6 and 6S owners plan to purchase an iPhone 7, the survey showed. That compares with 18% of iPhone 5S owners and 10% of iPhone 5 and 5C owners who plan to purchase the iPhone 7, Power said. Investors are concerned about Apple’s growth prospects, especially with iPhone sales poised to fall for the first time on a year-over-year basis this quarter. Also Tuesday, UBS analyst Steven Milunovich maintained his buy rating on Apple stock, with a 12-month price target of 120. And Drexel Hamilton analyst Brian White on Tuesday reiterated his buy rating on Apple stock, with a price target of 200. “With a recent earnings reset, a new iPhone cycle on the horizon with the iPhone 7, the ramp of Apple Watch, the potential for increased levels of cash paid out to shareholders and new geographic opportunities (e.g., India), we believe Apple represents one of the best values in the tech world,” White said in a report. RELATED: Apple iPhone Sales In China Fall Off Cliff In January Morgan Stanley Says Apple Stock Ripe For Picking Apple Poised To Disappoint With March Product-Launch Event .