The old world was a simple one. Apple needed two things to succeed: a well-off market willing to pay a premium price for its products, and a low-cost manufacturing base to build them. The U.S. and Europe provided the former, China the latter.
The idea that China could become Apple’s biggest market in less than a decade would have seemed unimaginable back when the first iPhone went on sale in 2007. It now looks inevitable.
Let’s run the numbers …
China has already overtaken Europe. Apple’s Q4 revenues from Greater China (comprising mainland China, Hong Kong and Taiwan) were $12.51B – dwarfing the $10.57B it earned in Europe (a region comprising around 50 countries, depending how some of them are defined). And you can pretty much ignore Hong Kong and Taiwan: Apple has reported that 96% of its Greater China sales are from mainland China alone.
At first glance, it might seem that the U.S. remains comfortably ahead, at $21.77B. But that lead isn’t as comfortable as it looks, for two reasons. The minor one is that the number is actually for North and South America combined, and Brazil is becoming an increasingly important market for Apple. The number for the U.S. is thus smaller than it appears.
But the bigger reason is the pace of growth in China. Apple has doubled its year-on-year revenues from Greater China two quarters running (technically, the Q4 increase was 99%, but I don’t think we need quibble over a single percentage point).
iPhone sales in China are growing even faster than revenue: they were up 120% year-on-year. The iPhone 6 is now the best-selling smartphone in China; the 6 Plus is number 3.
Nor is it a case of selling lots of low-end iPhones. While Apple hasn’t broken down the numbers, the company’s SEC filing gives a clue. As the WSJ notes, Apple’s profits in China are growing at an even faster rate than its revenues and sales. Its gross margins in the country have grown from 31% in fiscal 2013 through 35% in 2014 to 39% today.
But could Apple’s China sales really overtake those of the U.S. by the 10th anniversary of the iPhone? The numbers say yes. With revenue doubling year-on-year, one more year would comfortably do it.
The analysts say yes. Two analysts interviewed by CNBC earlier this year see it happening within six months.
And Tim Cook has very nearly said yes. He hasn’t ever put a date on it, but his statements that it will happen have grown increasingly frequent.
Against that, there is China’s sluggish economy. But as I argued back in August, that isn’t necessarily an issue for Apple, as it isn’t subject to the performance of the economy as a whole, only that of the growing middle class. Cook recently confirmed my view, stating that “you can’t really tell a difference if you look at our daily and weekly numbers.”
With the numbers, analysts and Cook’s statements all falling in line, I’d wager good money that long before June 29th, 2017 — the 10th anniversary of the release of the first iPhone — China will be Apple’s largest market.
Photos: Shanghai (Apple); Hong Kong (Daily Venture); Zhongjie Joy City (Leopold Fan); Hangzhou (Apple)