Apple (NASDAQ: AAPL ) established an all-time quarterly revenue record of $10 billion in Greater China in Q2. The tech giant's strength in the region is a great sign for Apple investors who are trying to find ways the company can still meaningfully grow its business. Here is why Apple's record Greater China revenue growth in Q2 won't be the last record set in the operating segment.
Is China Apple's biggest opportunity?
Possibly. In its second-quarter earnings call, Apple CEO Tim Cook explained that when you zoom out to the first half of 2013, total Greater China year-over-year revenue growth of 21% makes it the company's fastest growing region.
But does the region account for a meaningful portion of Apple's total revenue? Absolutely. Including Greater China retail sales, the nearly $10 billion in revenue that came from the region during the quarter made up 21% of Apple's total top line.
Apple doesn't plan to let the opportunity go untapped. As Apple CEO Tim Cook explained:
So we're looking at this data and deciding to continue investing in a big way. We plan to triple the number of Apple Retail Stores over the next two years. We're continuing to expand in online. We're continuing to build out channels.
Cook said that one of the key contributing factors to the growth in China was its recent arrangement to sell its iPhones through the world's largest wireless carrier, China Mobile. And this benefit should carry over into future quarters; China Mobile's rollout of its 4G network is just beginning.
But the health of Apple's business in China goes beyond Apple's arrangement with China Mobile. Sales of both iPhones and iPads in Greater China outpaced the overall growth for smartphones and tablets in the region during the quarter, based on data from IDC. Year over year, Apple's iTunes software and services revenue in the region grew by triple digits, Cook said during the Q2 call.
And Apple's lineup of iPhones this year, which are rumored to sport 4.7-inch and 5.5-inch displays, should also serve as a boon for the company's opportunity in the region. Smartphones with larger displays are selling nicely in China. In fact, four out of every 10 smartphones sold in China during the month of March had a screen size larger than 5 inches, according to research firm Kantar WorldPanel ComTech.
Apple is poised to reap rewards
While there will certainly be many surprises among manufacturers fighting for market share in the world's largest smartphone market, there's little doubt Apple will be among the largest beneficiaries of the opportunity. When it comes to premium smartphones in China, Apple dominates. Of the 27% of smartphones in China priced at $500 plus, 80% are iPhones, according to Chinese research firm Umeng. Of course the premium end also happens to be where the majority of profits in the market are.
If you're not convinced yet that Apple's opportunity in China is huge, consider this last data point (again from Umeng): The installed base of smartphone users in China grew from 380 million in the first quarter of 2013 to 700 million by Q4. With China Mobile, a rapidly expanding 4G network in China, and a larger iPhone -- Apple will be positioned right where it needs to be in 2014 and 2015 to benefit from the next several hundred million new smartphone customers in China (not to mention existing smartphone customers who decide to upgrade).
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