Why Apple Needs China

Suddenly, China is the key to Apple’s continued profitability and growth.
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Apple had a crazy earnings call this week. The company nearly doubled quarterly profits, vastly exceeding Wall Street expectations.

Apple’s stock price will probably now reverse course and head back into the stratosphere, and for one reason: China.

Apple sold 35.1 million phones during the quarter worldwide, which provided half the total revenue reported by the company. Half!

Chinese phone sales in the reported quarter were, incredibly, five times higher than the same quarter last year. What’s surprising about this growth is that Apple still hasn’t signed a long-awaited deal with China’s largest carrier -- the world’s largest carrier -- China Mobile.

So it has become clear to everyone that Apple’s highest-revenue product ever has enormous future sales potential in China.

Also: Apple feels that it has far fewer points of sale (stores) in China than it needs.

When the China Mobile deal happens and Apple builds more stores, watch out. China is likely to become Apple’s biggest handset market, far exceeding even the United States.

Overall revenue for China was $7.9 billion, three times higher than last year.

Another crazy milestone: Asia-Pacific revenue for the quarter was actually higher than European revenue for the first time ever. The relative importance of Asia over Europe is likely to continue indefinitely.

And Then There’s the iPad Problem

Apple also shattered its own record for iPad sales. The company sold 11.8 million iPads in the quarter, which is 151 percent higher than the previous year. What’s interesting about this, however, is that Apple failed to meet Wall Street expectations of 13 million units.

The reason for this disappointment? Again: China.

Apple told investors that the shortfall was the result of supply issues, which the company was vague about. But “supply issues” is code for Asian, mostly Chinese, component manufacturers struggling to keep up with Apple unit numbers or meet Apple’s demands for component pricing, or both.

That’s not the only challenge Apple faces in China.

The company is still embroiled in a trademark dispute with a two-bit, barely viable company called Shenzhen Proview Technology, which claims to own the “iPad” trademark in China.

Possibly as a result of this unresolved and major issue, China was not on the list of next countries to get the new iPad. Even relatively minor markets like Saint Maarten and Venezuela made the list, but not China.

Earlier this week, the deputy director for China’s National Copyright Administration said publicly that the Chinese government considers Shenzhen Proview Technology the rightful owner of the “iPad” trademark.

Because the courts are not independent in China, this could have been the judge’s cue to rule against Apple or force the company into a settlement unfavorable to Apple.

The whole issue could significantly delay the introduction of the new iPad in China and reduce iPad sales for the next quarterly earnings report.

Apple Knows How to Succeed In China

Apple’s overall sales success in China stands in sharp contrast to the experience of many other American or European companies.

Everyone thinks the Chinese market is gigantic for multinational companies. And it should be. China's population is about 1.4 billion people.


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Tags: iPhone, iPad, China, Apple


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