6 Reasons Apple Is Bullish On China
Apple Inc. (NASDAQ: AAPL) shares plummeted more than 2.2 percent following the release of the company’s fiscal Q4 earnings last week. Despite an earnings and revenue beat, the market was disappointed by shrinking margins and 30 percent decline in China sales.
For years, China has been the beacon of hope for investors concerned about a saturated U.S. iPhone market. Unfortunately, Apple continues to struggle with growth in China, as the most recent numbers confirm.
Despite the Q4 disappointment in China, CEO Tim Cook remains optimistic.
“From a longer-term point of view, out of the 90-day clocks and so-forth, we are very bullish on China,” Cook said last week.
Here’s a look at six reasons Cook is so hopeful:
1. China’s Growth Is Staggering
There is no question there has been an economic slow-down in China in recent years, but the Chinese economy is still growing at a blistering pace compared to the U.S. economy. A recent report by Boston Consulting Group projects China’s consumer economy will expand by $2.3 trillion within four years, even if its GDP growth rate falls well below government projections.
2. There Is Plenty Of iPhone Market Share Upside
While Apple holds 40 percent of the U.S. smartphone market share, the latest numbers out of China show only an 8.4 percent share. That number certainly leaves plenty of room for improvement, but iPhone share in China is currently moving in the wrong direction, down from about 12 percent a year ago.
3. Apple Seems To Be Making A Driverless Car Play
Apple may need a major new product line to break out of its rut, and China could play a huge role. Earlier this year, Apple invested $1 billion in Chinese ride-hailing service Didi Chuxing. The move opened the door for speculation that Apple is already establishing a Chinese market for its top-secret driverless car project.
4. Apple Is Learning About The Chinese Market
In August, Cook made a pledge to Chinese government officials that Apple would up its investment in the Chinese economy. That investment includes opening its first-ever $45 million research and development facility in China to develop computer hardware, communications technology and audio and visual equipment.
5. Apple Is Expanding Its Retail Presence
In June, Apple opened its 41st Apple Store in Macau, the most affluent city in the world. In addition to expanding Apple’s on-the-ground footprint in China, the new store openings seem to be driving a number of fake Apple Stores out of business.
6. Apple Pay Is Now In China
One of the major bright spots in Apple’s recent earnings report was its strong growth in service revenue. Last December, Apple announced a partnership with China UnionPay to brink Apple’s mobile payment platform Apple Pay to the massive untapped Chinese market for the first time.
There’s no question that Apple’s Q4 numbers out of China were disappointing. But there are also plenty of reasons to believe that Tim Cook’s long-term bullish vision for China is more than just empty optimism.
Image Credit: By ChIfcapsho (Own work) [CC BY-SA 3.0], via Wikimedia Commons
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