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In the most recent quarter, Apple (NASDAQ:AAPL) has blown out analysts' estimates with a historical earnings records. Amid lackluster iPod and Mac sales, inline iPad sales, the real surprise was iPhone sales. Among many others, I significantly underestimated the sales of iPhone in this recent article at Seeking Alpha. Where did I make the mistake?

The short answer is China, more precisely my China Syndrome with Apple. I based my estimate on AT&T (NYSE:T) as well as Verizon (NYSE:VZ)'s iPhone sales, plus the following chart of Internet search volume on iPhone in the United States. In fact, this gives a fairly accurate measure of iPhone's slowing-down growth in the United States.

(click to enlarge)

The real problem happened with estimating overseas sales. I did get a grasp that China is an important market, so I used iPhone's search volume from the largest search engine in China, Baidu (NASDAQ:BIDU)'s data, which shows the following chart, a fairly flat pattern except on the launching date. This is why I seriously underestimated iPhone's overseas market.

So what are the takeaways?

1. Chinese seem to care less about product information. With sales quadrupling, the search volume is almost flat.

2. Q1 is the most important holiday in China (Chinese New Year). Holiday sales should be accounted for.

3. Siri, the most touted feature in iPhone 4S, is useless for Chinese. In China, iPhone is often more of a fashion symbol for socioeconomic status, rather than a useful smartphone. The predict sales in China, what's more relevant is perhaps the "hype" or peak in iPhone search, rather than the overall volume.

4. Chinese seem to use keywords a little differently. They tend to ignore the space in words. For example, most English speakers would type "iPhone 4S", while Chinese would type "iPhone4S" without the space. It is extremely important to find out the local lingual habit when using search volume to predict sales.

Now that I have seen Apple's earning records, the question comes down to: what should I do with Apple? Should I buy it?

This again boils down the prospect of two of Apple's products: iPhone and iPad. I do expect iPhone 4S sales to take some pressure prior to Q4 2012, as everybody is expecting the release of iPhone 5 later this year. Many will put their purchase of iPhone 4S on hold. iPad, at this rate is on its way to a growth roughly inline with estimates this year. The good thing about iPhone being a fashion or socioeconomic statement in China is that it is now much easier to just re-model it each year. As long as Apple can make it appear differently, just like Louis Vuitton bags (also very popular in China), it will do fine in at least a few years to come. Given iPhone's prospect in China, I'm turning more positive on Apple. It only has to maintain the U.S. and Europe market, while watching the Chinese market growing quickly.

I hope these takeaways will be useful to all investors whose focus companies may have a significant share of business overseas. The sales out of the United States tend to be much more difficult to gauge.

Source: My China Syndrome With Apple