Apple, in case you hadn’t noticed, has become a China story. Its fiscal third quarter numbers were, as expected, very large and growing respectably: $37bn in revenue (up 6 per cent year on year) and $7.7bn in net profit (up 12 per cent). Sales of the iPhone were up 9 per cent. A bulk of the growth comes from China. In this quarter as in the previous two, well over half of Apple’s growth, in absolute dollar terms, came from China.
The launch of the iPhone 5 last December, and a January agreement with China Mobile, were milestones for Apple. China has an insatiable appetite for smartphones. Gartner estimates Chinese smartphone sales nearly doubled in 2013. Apple has only a small slice of this pie – roughly 8 per cent of the market, trailing rivals Samsung, Lenovo and Huawei. That leaves room to grow, as evidenced by iPhone units in China up 48 per cent last quarter (and iPad sales up 51 per cent). Apple is, importantly, making these sales without eroding the iPhone’s $500+ sales price.
Can Apple hold on to its sweet position at the high end of the market? Before the iPhone was legally available in China, it was the ultimate luxury: only those who travelled or had connections abroad could get one. But over the past year, Apple’s image in China has been eroded by attacks in Chinese state media over issues from security flaws to discrepancies in warranties. Meanwhile, competition is fierce. Xiaomi launched its new smartphone, the Mi4, on Tuesday. With a five-inch screen and a metallic rim, it looks like a large iPhone, but costs half as much. Xiaomi has a cool brand of its own. Apple is expected to launch a large-screen phone this autumn, partly to win over Asian customers. But holding on to growth and pricing power in China – and therefore growth, period – is not a given.