- Apple is experiencing strong growth in China.
- A growing middle class regards the iPhone as a status symbol.
- However, competition from Samsung means Apple has to step up their game considerably.
Apple (NASDAQ:AAPL) has enjoyed a stellar year in China. This is partly due to a rising middle class and a brand power which transcends cultural barriers. In fact, Greater China, which includes Taiwan and Hong Kong generates 25% of Apple's total revenue. Moreover, due to the fact that half of Chinese iPhone buyers are first-time purchasers, Apple enjoys an unprecedented appetite for their products. This said, there are certain 'roadblocks' to Apple dominating the Greater China market. On the other hand, there remain opportunities in China which could help skyrocket Apple's stock price.
Apple China: The Opportunities
Apple CEO, Tim Cook, indicated that Greater China is fertile ground for growth during the Q3 earnings conference call. He stated that Apple remains "extremely bullish" with regard to the Chinese opportunity, and will "continue to invest,".
To put into numerical perspective how well Apple has performed in China over the recent past, take a look at these figures.
1) Sales up 84% in the past fiscal year: It seems that Apple's marketing message has reached the Chinese people loud and clear as consumers are literally scrambling for the handsets. In fact, take a visit to China, and the iPhone is the smartphone of choice for most business people. It has taken the productivity crown that RIM's Blackberry previously enjoyed.
2) iPhone sales up by 112% Y-o-Y: This isn't surprising as the iPhone is Apple's greatest source of revenue. The middle class in China have more disposable income. As a result, they are looking for new ways to spend it. Generally speaking, the Chinese view the iPhone as a statement of having achieved success.
3) On average, consumers in China opt for iPhones with higher storage; as a result Apple is able to gain more profit as compared to selling their product in another region.
It is worth noting that Apple's record beating quarter for iPhone sales is strongly connected with their performance in China. Greater China has a population of more than a billion people, and due to an increasingly entrepreneural population, Apple is betting big that as the economy improves, their sales improve too.
Apple China: The Roadblocks
When one looks at the fact that China is the Mecca of manufacturing, it is somewhat surprising that Apple has been able to grow so quickly. Therefore, as Apple becomes more dominant, expect to see more iPhone knockoffs being released into the market, and an increase in competition from much smaller manufacturers. Of course, Apple won't be easy to beat this way.
Unfortunately, due to China's famous censorship of online materials, the benefits of having an iPhone aren't as pronounced as they are in the West. For instance, Apple Music, and iTunes are all internet-connected content stores; however, most of the content isn't available to consumers. In order to appease China's ruling government, access to the news app was blocked.
This presents a dilemma for Apple. Chinese consumers are basically buying high-end smartphones for the prestige. When we consider that Samsung and other manufacturers are releasing premium smartphones, it creates a competition pressure in the marketplace.
Apple's ability to market the Macbook and iPad range in China could add a lot of growth to their bottom line. And due to the premium materials their products are made of and the comparatively higher cost, Apple has a great opportunity has a great opportunity to establish its brand as the right of passage between poverty and affluence.
It is worth noting that Samsung has 23.8 % of the global smartphone market, and Apple stands at 13.5%. Plus, Samsung also has plans to 'grab' the market share in a big way. Consequently, China is like a 'battle ground' for smartphone manufacturers to fight for more market share.
Apple remains keen on the 'Chinese opportunity'; and rightfully so. Plus, the competition they have with Samsung in this region should provide for better products and a more aggressive growth plan. This should help to boost global revenue.
The next range of iPhones could be an absolute game-changer for Apple. If they can release an iPhone with the same hype surrounding the very first iPhone, they could take considerable market share from Samsung in Greater China.
We will just have to wait and see, but things are looking exciting for Apple in the East.
If you're looking to understand more about the company, you might also want to check out more latest articles and videos about Apple.