For Apple (AAPL) to summit the Himalayan like peaks predicted by many fervent analysts, they must continue to focus on specifically courting the emerging markets of mainly China, but also India, Brazil, Indonesia, etc. If there was any doubt of this before April earnings, they are now dispelled. The declining growth seen in first quarter sales by domestic carriers like Verizon (VZ) demonstrates the need for emerging markets to continue to pick up the slack.
As the most desired premium brand in the developed world, Apple is therefore seen in emerging markets as a status symbol especially in China. Unlike the stories you hear in the sensationalist media about Apple and Foxconn, the Chinese actually view the relationship in this sense: They are helping to produce one of the most high-quality, high-demand, cutting-edge product lines in the world and the lives of themselves and their families are being benefited directly and indirectly from their involvement with Apple.
As these emerging economies begin or continue to prosper and progress from this type of partnership, it will become the needed catalyst to create a population with enough disposable income to manifest itself by owning Apple's innovative products.
In China, decades of a one-child policy has created an American like generation where iPads or iPhones are now expected. Also, the young sophisticated Chinese population is turning away from competitors toward Apple. Translation: Apple sales are just scratching the surface here.
I think management is well aware of this fact as CEO Tim Cook was eyed last month in Beijing touring an Apple store there. This is significant because, to my knowledge, Jobs never made that trip. Well played, Mr. Cook. The show of courtesy and respect the visit represents will almost certainly be viewed as a positive catalyst helping to win over fickle Chinese officials.
China is one of the oldest societies in the world so customs and courtesies are taken very seriously and noticed. When the CEO of the world's largest and most influential company decides to visit, it demonstrates that Cook and Apple view China as a very important future business partner going forward.
The sighting also prompted rumors that the main purpose of the visit was to discuss Apple's next iPhone with China Unicom and China Telecom, Apple's two wireless service providers in that country. Another leaked rumor was that he may also meet with China Mobile, a third carrier that is not currently an iPhone provider.
Apple only has 5 mainland stores on Chinese soil: Three are in Shanghai, two are in Beijing, plus one in Hong Kong. To put this in perspective, there are over 200,000 retail phone outlets in China. Even with this extreme disadvantage and limited exposure to the broader Chinese market, Apple's sales in China still accounted for more than 10% of its total sales globally.
Add this to the fact that Apple does not yet sell to China's largest Carrier, China Mobile, and you get a recipe for another solid growth story. This underserved base is larger than the entire US market altogether. Once again, just scratching the surface here.
Closing
I continue to be unfazed by the recent sentiment change toward Apple because of its potential growth throughout the developing world, especially in China. In the next few years look for Apple to continue to enjoy strong growth in China and, in turn, expand market share there. This quarter was a blowout because it included growth from China Telecom as well. Some other interesting tidbits out of the rumor mill.
- All signs point to China Mobile waiting for the next iPhone when it presumably will have a radio chip that works on China Mobile's network. Up to now, unless you have a TDSCDMA 3G radio chip, your phone will default to EDGE. That's like using your iPhone on T-Mobile, the wrong 3G frequencies will only get you kicked down to EDGE speeds.
China Mobile's CEO has been quoted as saying the next iPhone will have a TD-LTE chip, thus compatible with their 4G network and 3G network. This integration is expected for the iPhone 5 launch in the fall.
