For Apple Inc. Stock, China Is Still a Catalyst

Think Apple's revenue will top out at $212 billion? Soaring sales in China suggest otherwise.

Daniel Sparks
Daniel Sparks
Jun 23, 2015 at 4:00PM
Technology and Telecom

With Apple (NASDAQ:AAPL) now raking in $212 billion in annual revenue, some investors may be concerned whether the tech giant can grow its business any more. After all, Apple is already the world's most valuable company, and it would be unreasonable to expect things to go up forever. But to assume there isn't good reason for the tech giant's top line to continue upward just because of its size would require ignoring the company's fast-growing sales in the world's most populated country.

Apple loves China
Some people poked fun at Apple when the company first introduced a gold option for its iPhone when it unveiled its iPhone 5s lineup in 2013. But anyone who picked on Apple probably wasn't familiar with Chinese stylistic tastes. Gold is a very sought-after color in China. Indeed, before Apple introduced a gold version of the iPhone, the shiny color was one of the most popular choices in the country for iPhone after-market color adjustments and cases.

As it turns out, speculation that Apple is targeting China with its gold-colored iPhones proved correct.

"The decision to offer a gold iPhone last year reflects in part the popularity of that color among Chinese users," write Bloomberg's Edwin Chan and Lulu Yilun Chen, paraphrasing comments from Apple CEO Tim Cook in a recent interview in China.

Apple recently introduced its first gold Macbook. Image source: Apple.

Why China matters
China's importance to Apple's financial results has been growing for years. Today, China is absolutely crucial to the tech giant's performance.

Though Apple doesn't break out revenue from China into a single geographic segment, the dominance of its Greater China segment, which includes China, Taiwan, and Hong Kong, clearly shows how key the country is becoming to Apple's results. In Apple's most recent quarter, Greater China accounted for a third of the company's total revenue. At $16.8 billion, revenue from Greater China was second only to Apple's Americas segment, which reported $21.3 billion in revenue.

But is there really potential for further growth in Apple's Greater China segment? Judging by year-over-year revenue growth rates in the segment, there almost certainly is more growth potential remaining. In Q2, Apple's Americas revenue jumped 19% from the year-ago quarter. Yet revenue growth during the same period in China was a monstrous 71%.

Apple CEO Tim Cook provided a few product-specific Q2 unit sales figures for China during the company's second-quarter earnings call. iPhone unit sales were up 70%, year over year. Even the Mac unit sales were up strongly in China, growing 31%. And App Store revenue in China was up over 100%, year over year, during Q2, Cook added.

The astounding growth in Greater China is prompting Apple to invest heavily in the market, particularly in an expansion of its retail stores. The company boosted its store count in the region from 15 to 21 in the past six months. And by the middle of 2016, Apple plans to have 40 stores in the region open, management said during its second-quarter earnings call. 

There's no reason China won't continue to be a meaningful catalyst for Apple. Sure, historic performance isn't always an excellent indicator of future results. But until evidence arises to support the counterargument, it looks likely that China will continue to be a boon for Apple in the coming years.