Here's Where Apple Makes Its Money

No doubt about it, Apple (NASDAQ: AAPL  ) has been one of the most exciting tech stories to follow over the last decade plus.

If you were lucky to buy shares of this then-$16 billion company early in 2000, you could boast of a mammoth 3,500% return -- turning $1,000 into $3.5 million. The key to this return has been a relentless focus to product quality and user experience. Apple's succeeded so well the name is synonymous with quality.

And that's how Apple was able to bring in nearly $178 billion over the last twelve months, by selling those legendary products -- iPhones, iPads, and Macs -- all over the world. Here's where Apple made its money over the last twelve months, and the prior period as well.

No. 1: Americas
Apple continues to execute in the operating segment it calls home. The iPhone 5 release and increased sales through the iTunes store are credited for this growth. However, the Americas only witnessed 0.5% growth over the prior year. An increasingly saturated iPhone market, falling iPad sales, and the lack of a new iPod iteration continue to weigh on the company's America's growth.

No. 2: Europe
Although Europe comes in at No. 2, growth was also slow in the region. A protracted recession weighed on Mac sales, iPhone sales, and iPad average selling prices. However, iTunes sales and iPad units helped grow the regional top line 4%. Many point toward a bifurcated market that pits Apple against Google's (NASDAQ: GOOGL  ) (NASDAQ: GOOG  ) Android-based phones in the increasingly saturated Western Europe markets and pricing concerns in other European markets.

No. 3: Greater China
There's probably no other operating segment that excites fans quite like Greater China. And there is a reason for this, the tremendous potential. Sales in this region grew 18.7% last year, but Apple is targeting the region with recent moves -- signing a deal with China's largest carrier, China Mobile, that opens up Apple to nearly 800 million subscribers. In addition, if rumors are true, Apple could be releasing a phablet with the iPhone 6; phablets are quite popular in Asia.

No. 4: Japan
Often overlooked, Japan is crazy for Apple products. While many Apple investors focus on China, Japan has also produced growth of 18.7%. Prime Minister Shinzo Abe has recently engaged in a series of stimulative measures, dubbed Abenomics, designed to pull Japan out of its nearly two-decade funk.

Abenomics results may be up for debate, but Apple sure is performing well there, albeit it from a smaller base than other regions. Apple sealed the deal with NTT DoCoMo late in fiscal 2013 that should keep Apple's growth in this region brisk. Reasons given for its great growth in Japan are "significant increases in iPhone and iPad unit volumes, and strong growth for iTunes stores."

No. 5: Rest of Asia Pacific
Apple reports the rest of Asia separately, perhaps telegraphing its Asia strategy as primarily focused on China and Japan. The remainder of the Asia, including Australia, actually dropped 8% on a year-over-year basis.

No. 6: Retail
No, retail isn't a new country, but rather Apple includes items sold through its retail operations separately here. Growth here was 4% on a year-over-year basis, but still only accounts for 12% of total net sales. Tim Cook has mentioned specifically he wants to increase this percentage by noting, according to Mark Gurman:

The iPhone is Apple's central "gateway product" to other devices like iPads and Macs, so it is critical that the Apple smartphone is sold via an Apple Store so new customers are immediately exposed to iPads, Macs and other devices on the showroom floor. Even though 80% of iPhones are not sold at Apple Stores, 50% of all serviced iPhones are troubleshooted, repaired, or replaced at Apple Store Genius Bars.

Tim Cook was even able to lure Burberry exec and retail guru Angela Ahrendts away and have her lead Apple's retail strategy going forward.

Final thoughts
As you can see, Apple is more than a U.S. company -- it's a global brand. However, recent revenue growth has slowed by clocking in a 5.2% over the past twelve months -- well below its amazing post-2000 average of 26% a year.

Rumors abound of a new product to bolster that top line, perhaps a payment service, an iWatch, or a phablet. Tim Cook promised the company is close to a new product. With increasing product saturation and slowing top-line growth, eager fans and investors are waiting with bated breath. 


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  • Report this Comment On August 04, 2014, at 3:59 PM, Drichter wrote:

    "The key to this return has been a relentless focus to product quality and user experience. Apple's succeeded so well the name is synonymous with quality."

    Misleading statement. Multiple three-year reliability studies placed Apple's laptops squarely in the 'average' category despite all other manufacturer averages in the studies being weighed down by device offerings on the extreme low end, where failure is much more common.

    Quality of the user experience is harder to quantify, but doesn't appear to be anything special either.

    HOWEVER.

    Apple pioneered the 'ecosystem' strategy and has been extremely successful in convincing users that they are locked into apple products and can't find such experiences elsewhere (or would need to work hard to achieve such an experience). Their marketing department is also much better than most, and they have the luxury of momentum.

    The right place, right time, and right strategies coupled with products that are genuinely decent (even if not at all the best) put them in a pretty good place. The real difficulty lies in maintaining that position, which their recent price cuts suggest may be tough for them.

  • Report this Comment On August 04, 2014, at 4:59 PM, TMFJCar wrote:

    @Drichter,

    First thanks for reading. I'll try to address some of your comments.

    <<Misleading statement. Multiple three-year reliability studies placed Apple's laptops squarely in the 'average' category despite all other manufacturer averages in the studies being weighed down by device offerings on the extreme low end, where failure is much more common.>>

    Well, quality isn't exactly the same as reliability (although I admit you really can't have one without the other). For what it's worth Forbes appears to agree with me by rating Apple as the World's Most Valuable Brand:

    http://www.forbes.com/powerful-brands/list/

    <<Quality of the user experience is harder to quantify, but doesn't appear to be anything special either.>>

    I totally agree with quality of the user experience being harder to quantify, but there are many surveys that prove my statement right as well: http://venturebeat.com/2013/01/31/iphone-users-are-happier-a...

    <<Apple pioneered the 'ecosystem' strategy and has been extremely successful in convincing users that they are locked into apple products and can't find such experiences elsewhere (or would need to work hard to achieve such an experience)>>

    Personally, I feel the ecosystem is part of the quality strategy you addressed above -- and a really brilliant part of that. If you look at number of apps, including exclusive ones, I think Apple's ecosystem is second-to-none. And personally, its trapped me by iTunes.

    <<The real difficulty lies in maintaining that position, which their recent price cuts suggest may be tough for them>>

    I'd love you to be more specific here. I know the MacBooks have gotten price cuts, but to me that's more of a market-gaining move than a "we're losing business" move. Apple's margins have actually been going up, which implies (but doesn't confirm) they aren't experiencing pricing pressures.

    Anyhoo, thanks for reading!

    TMFJCar -- the author

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