China is becoming an increasingly important market for Apple (NASDAQ:AAPL), not only when it comes to current revenues, but also in terms of future growth opportunities. Fortunately for investors in Apple stock, everything seems to suggest that Apple is positioned for explosive growth in this key region in the years ahead.
On growth and opportunity
Apple produced $16.8 billion in revenues from the Greater China market during the second quarter of fiscal 2015, accounting for a big 29% of total company sales. China is also outgrowing other markets by a wide margin, since revenue from this key market jumped by a staggering 71% versus the same quarter in the prior year. As long as this trend remains in place, China will probably become increasingly important for Apple in the future.
iPhone unit sales grew 70% year on year. According to management, and based on estimates from Kantar, this would mean Apple gained approximately 9 points of market share in the China smartphone market during the quarter. Pointing in the same direction, data from both Gartner and IDC confirms that Apple became the leading smartphone vendor in China during the first quarter of 2015.
Consumers in Asia are particularly fond of bigger screens, so Apple's decision to increase screen size with the iPhone 6 and 6 Plus looks like a winning move in terms of competitive strengths in China. The same goes for its gold-colored iPhone, which is especially popular in the Middle Kingdom.
Also, while IDC calculates that total PC sales in China declined 5%, Apple delivered a big 31% year-over-year increase in Mac sales. iPad sales have been clearly slowing down around the world in recent quarters, but Japan and China are two notable exceptions. Apple set a new March-quarter record for iPad sales in Japan, and an all-time record for iPad sales in China during the period.
The company is also accelerating its retail-store expansion in the country. Apple opened six new retail stores in the Greater China region in the past quarter, bringing the total store base to 21 stores in 11 cities. By the middle of next year, management is planning to nearly double that base to 40 units in Greater China.
Apple is also building a big ecosystem of services and applications especially targeted toward Greater China, and this is paying off in spades for the company. The App Store had a record quarter, growing over 100% year over year in the second quarter of fiscal 2015. Apple has already made payments to developers in Greater China of almost $5 billion, with more than half of that money corresponding to the past 12 months.
China is in love with Apple
Investment bank Credit Suisse regularly publishes its Credit Suisse Research Institute's Emerging Consumer Survey. The Investment bank has partnered with Nielsen to conduct nearly 16,000 face-to-face interviews with consumers across nine key emerging economies: Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Turkey, and South Africa. The report provides a huge database to analyze key demand preferences in emerging markets, and the numbers looks quite encouraging when it comes to Apple.
From the report:
No brand analysis would be complete without mentioning Apple, and once again we see steady improvement in momentum this year among both income groups. The size of the bubble is reflective of Apple's broad penetration in the largest emerging markets, notably China.
A recent survey from UBS provides further evidence on Apple's extraordinary strength among Chinese consumers. According to this survey, Apple is not only the most popular brand in smartphones for consumers in China, but Apple users are also more inclined to upgrade their smartphones more frequently and more willing to spend additional money on an upgrade.
Apple has gained a lot of ground in China lately, and the company is deeply engrained in the minds and hearts of Chinese consumers. This puts Apple in a privileged position to profit from the rise of the Chinese middle class over the years and even decades ahead.