At the close of each fiscal year, Apple (Nasdaq: AAPL ) files its 10-K, a several-hundred-page document that gives investors a deep look into the company's operations. Yesterday I took a look at research and development (R&D) disclosures from the company's 10-K.
However, the 10-K features no shortage of other storylines that you might be missing if you only follow the headlines on areas like R&D. I've gone through Apple's 10-K highlighting the differences between its 2011 and 2012 10-K, and there are some interesting additions Apple made this year.
I'm taking a look at new information from Apple's 10-K that's catching my eye, next up is what Apple's saying about Europe.
Trouble in Europe
The fact that Apple's Europe segment would trail other regions should come as no surprise, since the continent is struggling. Sales in Apple's Europe segment increased 31% in fiscal 2012, well below the company's 45% overall growth rate. However, Apple's 10-K offers some additional commentary on the situation. A new addition in this year's 10-K states:
"Lower year-over-year growth in net sales in the Europe segment during 2012 compared to the Company's other geographic segments reflects growth in iPhone unit sales that was well below the growth rates experienced by the Company's other operating segments, partially offset by strong growth in iPad unit sales."
Apple blames slower growth in Europe largely on the iPhone. Compare that with the prior year, when Apple trumpeted that carrier expansion of the iPhone was a driving force behind Europe's results:
"The increase in net sales during 2011 was attributable primarily to the continued year-over-year increase in iPhone revenue from carrier expansion and strong demand for iPhone 4."
Europe pushing back
With Apple having pushed out most of its European expansion last year, the counteracting force of carriers in weaker economies like Spain that are pushing back against subsidies could be a factor in the company's slowing iPhone growth in the region. The most notable example was Telefonica (NYSE: TEF ) , which balked at phone subsidies in March of this year. The result is that wireless customers must pay the full $600-plus charge for an iPhone, though it's now charged as installment payments to customers' usual wireless bill.
Apple's Europe disclosure brings up a very important point to analyzing the company. Impressive iPhone growth rates have been aided in prior years not just by an increased demand among consumers to buy iPhones, but also by the fact that expansion in the number of carriers selling the iPhone each year increased the addressable market for the phone itself. How much "growth fuel" is left for Apple from striking new partnerships abroad?
What expansion remains?
On the expansion front, a look at North America shows Apple having signed agreements with remaining opportunities such as Sprint Nextel (NYSE: S ) and smaller prepaid carriers such as Leap Wireless (NASDAQ: LEAP ) , which limits its additional revenue-generating opportunities from expansion in the United States. The notable glaring omission is T-Mobile, which is the fourth largest U.S. carrier but still has more than 30 million subscribers and would add another 9 million if its purchase of MetroPCS closes.
The geographic region with the most potential for expansion remains Asia-Pacific. Most of the attention here rightfully goes to China Mobile (NYSE: CHU ) . The carrier closed last year with 650 million subscribers and has a large army of users who already use the iPhone, even though it's not officially sold through the carrier. As of March, China Mobile reported 15 million iPhones on its network.
In Japan, the nation's largest carrier carrier, NTT DoCoMo, which has more than 60 million subscribers, also doesn't offer the iPhone. That's a pretty mighty opportunity in a very developed market. In less developed areas, markets such as India present almost pure upside to Apple. Though with Apple still lacking a retail presence in the country -- in part because of Indian law -- investors shouldn't expect that market to be a repeat of Apple's China success.
250 carriers down, but some big fish left
Will Apple's share be as high on carriers where it gets a late entry? Probably not. Not only have subscribers already bought Android phones and acquainted themselves with its interface and bought apps and media, but customers who really wanted the iPhone have had years to switch to alternative carriers offering the phone. The obvious example would be in America, where iPhone activations as a percentage of smartphones are much higher on AT&T (NYSE: T ) compared with Verizon (NYSE: VZ ) . AT&T famously had years of exclusivity with the iPhone in America.
The bottom line on expansion as a driver of growth is that it's slowing down, especially in more developed areas, with a particularly glaring omission being Japan's NTT DoCoMo. However, especially in the Asia-Pacific market, opportunities remain. The big fish is still China, where 15% of Apple's revenue came from last quarter. Its stunning to think that number included little contribution from the country's largest carrier.
The iPhone is now on "over 250 carriers" That's a pretty high number, but still leaves out some notable major providers. If anything, with opportunities tilting toward Asia, it shows how that geography will stay the center of Apple's growth in the years to come.
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