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Massive China market offers even more upside for Apple

Gregg Keizer | April 30, 2015
71 percent increase in Q1 revenue relied on iPhone, but the halo effect in the PRC has yet to be fully exploited, say analysts.

"China is where Apple's growth is now, and obviously the focus," said Dawson in an interview. And that growth has room to, well, grow even more.

Unlike more mature markets, especially the U.S., Apple in China lacks a broad-based retail infrastructure of its own, and sales of non-iPhone products and services, including the iPad and Mac, are significantly smaller.

Apple has just 21 stores in Greater China at this point, less than 8% of the number in the U.S.. But it plans to nearly double that number by mid-2016.

The dominance of the iPhone within Apple's portfolio in China gives the company room to boost sales even more, Dawson and Moorhead asserted. While the "halo effect" of the iPhone in the U.S. is strong -- iPhone sales trigger purchases of Macs, iPads and Apple services -- there's a much weaker connection between the lines in China.

"Retail presence is critical" to encouraging the halo, said Dawson.

Apple provided some information Monday about sales of non-iPhone products in the region that signaled improvements. Cook said that Mac sales in Greater China were up 31%, triple that of the global increase for the quarter, and iPad sales there were a record. Cook also said 70% of iPad buyers in China were first-timers to the tablet, nearly double the 40% in the U.S., as he spun the device's poor performance, now in its fifth quarter of declining sales.

While both Dawson and Moorhead highlighted Cook's statistics as pointers about Apple's future opportunity in China, each also labeled the Apple Watch as the likeliest next-big-thing there.

"The growth [in China] is driven largely by the iPhone, but what other products can contribute?" Dawson asked, then tapped the Watch as the answer. "What will be worth watching is the Watch launch," he said. "It could start making contributions in the next few quarters."

Not surprisingly, there are risks in banking on China.

Western technology companies in general face an increasingly hostile environment there, what with the PRC's protectionist moves, said Moorhead. But Apple is insulated more than most because others rely heavily on sales to government agencies and businesses, which are being forced or pressured to shift to domestic vendors.

"Apple is a consumer play, it's not in the back offices of enterprise, military and the government," said Moorhead.


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