Survey: Apple Watch demand strongest in China

The UBS analyst who recently said Apple had "somewhat botched" the Apple Watch launch sees China playing a major role in driving sales for the new device.

The insight comes from a new research note based on a UBS survey of 9,000 consumers in six countries released on Monday.

"It's finding that Apple continues to be extremely strong, the stickiness is very clear, and it's China, China, China," Steve Milunovich told "Squawk on the Street." "We're finding that Apple's retention rate is very strong in China, and we're also finding that actually Apple Watch interest is highest in China relative to the other five countries that we surveyed."

UBS also revised its forecast for June iPhone shipments to 48 million units from a previous estimate of 43 million, based on the survey. China is expected to account for 46 percent of iPhone shipments in the fiscal third quarter, up from 28 percent in the same period last year.

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"I feel a little bit better after this survey that there is further growth in China, that the stickiness and the so-called Applesphere, as we call it—the ecosystem—is likely to keep things pretty decent next year, even though it's not going to be as strong of an upgrade cycle as this one," Milunovich said.

For that reason, UBS continues to rate shares of Apple a buy and maintains a $150 price target, he added. The stock was trading at about $129 on Monday.

This month, UBS lowered its outlook for Apple Watch sales for fiscal year 2016, saying it now expects Apple to ship 31 million units rather than its previous estimate of 40 million.

UBS cited lower Internet search levels for the smartwatch relative to an index of 30 consumer products, including the iPad and iPhone. The financial services firm now believes about 7 percent of the estimated 430 million iPhone 5 and iPhone 6 users in 2016 will buy a Watch, down from its earlier 10 percent forecast.

The firm said supply issues negatively impacted the Apple Watch introduction and the company reduced the buzz around the launch by requiring potential buyers to schedule an appointment at retail locations.

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In the UBS survey released on Monday, 8 percent of consumers said they might buy an Apple Watch, down from 10 percent in a previous survey.

However, the mix of high-end and more affordable Apple Watch models is developing better than UBS expected, Milunovich said. The firm had previously expected the entry-level Apple Watch Sport to account for about two-thirds of sales, but more expensive models appear to make up half of shipments.

"Units may be weaker, but pricing might be a bit better," he said.

China could become a $150 billion market for Apple in the next few years, Daniel Ives, senior technology analyst at FBR Capital Markets told CNBC's "Squawk Alley." The firm also expects China to surpass the United States and become Apple's top market by fiscal year 2017.

At present, Wall Street is only modeling in $70 billion in Chinese revenues, but FBR sees the iPhone continuing to take a larger share of the smartphone market, a trend the firm believes will lead to uptake of other products in Apple's ecosystem.

At present, Apple controls about 15 percent of the Chinese iPhone market, Ives said, but the company can grow its slice of the pie significantly. In a research note, he said Apple had grown Chinese revenue from less than $1 billion in 2009 to about $30 billion last year.

"This is really a land grab opportunity for Apple. It's what they do the best, and that's really why this is the next step for the Apple story," he told "Squawk Alley." "We could talk about the developer conference, larger iPads, everything we expect. China is key to an Apple stock going higher."

Disclaimer: Steve Milunovich owns shares of Apple. UBS does not hold greater than a 1 percent share of the stock, but provides investment and non-investment banking services to the company and makes a market in the security. Neither Daniel Ives nor his family own shares of Apple. FBR Capital Markets holds a greater than 1 percent stake in the stock. It does not provide investment banking services to the company.