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Why Apple is winning in China

Jared Newman | May 2, 2014
Apple's China earnings has buoyed the company and helped it beat Wall Street estimates last quarter. And there are signs that the best is yet to come.

As Technode reported at the time, China was among the first markets to receive the new iPhone 5s and 5c last fall. This helped boost sales through official channels, rather than gray market dealers who offer jailbreaking services. It's safe to assume that, the more official channels there are, the more likely customers are to get hooked on Apple's software and services, which may help explain why Apple plans to triple its number of China retail stores over the next two years.

Even Mac unit sales saw a boost last quarter, increasing by 13 percent while the rest of the PC market plummeted. It's yet another sign that Apple is building a customer base in China without stooping to lower-priced, lower-quality products.

Not all the news was cheery in China last quarter. Sales of Apple's iPad declined, though Apple blames the drop on "differences in timing of new product launches." Basically, because Apple launched new iPads near the end of Q1 2013 in China, it had to produce lots of units in Q2 2013 and sell them into the retail channel. But this year, Apple launched new iPads in the early part of Q1 and produced lots of new units that same quarter. By the time Q2 came around, Apple was reducing its channel inventory. Not counting changes in channel inventory, Cook said that demand for iPads rose by 6 percent in China year-over-year. That's better than IDC's forecast of a flat tablet market, but not a huge increase.

When we looked at Apple's history in China last fall, we concluded that the company can find success by pursuing the same strategy it does elsewhere: making premium products that people are willing to pay for, even if they're more expensive than some competitors. Some analysts may continue to call for Apple to produce cheaper products in pursuit of Chinese market share, but that would only result in short-term gains. As last quarter's results have shown, Apple is much more interested in positioning itself there for the long haul.

 

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