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What Apple, Inc. Said About China on Its Latest Earnings Call

By Chris Neiger – Jul 28, 2015 at 2:23PM

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Apple execs took plenty of time on the company's latest call to discuss one of the company's most important markets.

Apple (AAPL 0.79%) recently ported its fiscal Q3 2015 earnings, and the three months went pretty well overall. But some of its numbers missed analysts exceptions (how dare Apple!), which pushed the company's stock price down. Among investor concerns was the possibility that Apple is facing problems in China.

On the company's earnings call, CEO Tim Cook and other execs talked a lot about China, which helped shed a light on Apple's prospects there. Let's take a look at everything the company said about China on the call to find out how Apple's really doing.

Image source: Apple.

Growth, growth, and more growth
On the call, Cook laid out three main areas where Apple is growing in the Greater China region (which includes mainland China, Hong Kong, and Taiwan). He said: "Our results from Greater China were outstanding with revenue growth of 112% and iPhone unit growth of 87%. This is particularly impressive given IDC's estimate of only 5% growth for the Greater China smartphone market. We also achieved our highest ever PC market share in the segment with Mac sales growing 33% over last year."

Luca Maestri, Apple's CFO, followed up by saying that, "Our results were especially impressive in Greater China, where revenue more than doubled year-over-year to over $13 billion."

By any standard, these numbers are pretty impressive. China has become Apple's largest smartphone market, and the company is easily blowing past China's overall smartphone market growth. And, just as in other markets, Apple's Mac sales continually buck the negative PC market trend. 

The state of Apple's physical and digital stores
Although App Store sales are less critical than unit sales of Apple's iPhone, expansion of app purchases shows the company's devices are proving popular among users.

Cook said that the Apple's ecosystem in China "continues to grow at a very fast pace" and Maestri followed up noting that, "Services growth was particularly strong in China, where the App Store revenue more than doubled year over year." He also noted that China-based developers have created 250,000 apps for the China App Store to date.

While China's App Store is growing, the company is also expanding physical locations in the county. Apple opened its 22nd store in China in Q3, but said that that number would jump to 40 by the middle of next year.

Opening new stores doesn't necessarily predict stronger sales or more revenue, but it shows that Apple believes it's in a position to grow both of those in the country -- and will utilize physical stores to do so. Apple Stores are wildly successful worldwide, and adding a larger physical presence in the company's largest iPhone market can only be a good thing. 

Apple's still getting first-time buyers
Cook, after being asked about what kind of sales growth Apple expects to see for the iPhone, said: "I also look at the first-time iPhone buyers and we're still seeing very, very large numbers in the countries that you would want to see those in, like China and Russia and Brazil and so forth."

It's worth noting first-time buyers here, because for about two years some analysts have said that Apple's grip on first-time buyers was slipping in China. 

China's economic worries
China's recent stock market drop has led some to worry about the state of China's economy, and subsequently Apple's ability to sell devices there. I outlined recently why investors shouldn't worry about Apple in China, and Cook tried to assuage investors as well. 

Here's what he said in response to a comment concerning China's economic situation: 

We remain extremely bullish on China and we're continuing to invest. Nothing that's happened has changed our fundamental view that China will be Apple's largest market at some point in the future. It's true, as you point out, that the equity markets have recently been volatile. This could create some speed bumps in the near term.

But those speed bumps don't spell doom for Apple. Cook went on to say that China's stock market is still up by 90% over the past year, 20% year-to-date, and that most Chinese households aren't exposed to the stock market -- essentially echoing what The Economist wrote earlier this month

Don't forget the rising middle class
Cook's main defense of Apple in China may have come when he talked about how the country's middle class is growing.

Here's what he said:

The rise of the middle class there is continuing, and it is transforming China. ... I saw a recent study from McKinsey that's projecting the upper middle class to grow from 14% to 54% of households over the 10-year period from 2012 to 2022. 

So we're within that period at this moment, and you can see for all of us that travel there so much, with every trip you can see this occurring. And so I think we would be foolish to change our plans. I think China is a fantastic geography with an incredible unprecedented level of opportunity there. And we're going to be there.

So while some analysts are playing up the possibility of China's economic woes, right now it appears Apple is doing quite well in the country. Of course, it's wise to continue keeping a close eye on what happens with the country's economy, but for now investors should be focusing on Apple's outstanding numbers in the country. 

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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