China Is the Key to Apple's Future Growth

Any investor that hasn't been under a rock in the last few weeks is aware that Apple (Nasdaq: AAPL) once again topped Wall Street forecasts for its performance in the second quarter of 2012.


Behind the latest surge in Apple's results was the news that the company had sold 35 million iPhones during the quarter, ahead of most estimates. Sales of the iPad came in ahead of estimates also at 11.8 million, 150 percent ahead of the year ago period.

Apple itself stated that the surge in iPhone sales was due largely to strong performances in international markets. And there is the key for Apple investors. Apple's future fortunes lie in overseas markets and most importantly in China.

Consider this bit of information which came out of the recent Apple earnings conference call. Sales in greater China during so far this fiscal year came to $12.4 billion, compared to sales of $13.3 billion for the whole of the 2011 fiscal year! Sales of the iPhone in the second quarter were more than 5 times higher than during the same period last year.

And it's not just the iPhone and iPad which are flying off store shelves in China. Even Mac computer sales were up more than 60 percent in the country, well above the 6 percent growth rate for the personal computer market there and the 7 percent growth for Mac worldwide. The “cult” of Apple seems to be growing there, amazing even CEO Tim Cook who said on the conference call “It is mind-boggling that we could do this well [in China].”

China already is the second biggest market for Apple in terms of sales, trailing only the United States. The company's second quarter China sales came in $7.9 billion, accounting for a chunky 20 percent of Apple's total second quarter sales of $39.2 billion. These sales in the second quarter of 2012 pushed the Asia Pacific region to surpass the European region for the first ever in terms of revenues to Apple.

The good news for its investors is that Apple has barely scratched the surface in China. The number of point of sales in China is only 11,000 for iPhones, 2,500 for iPads and just 1,800 for Mac. Consider also that its stores in China are among Apple's most heavily trafficked in the world. No wonder that Tim Cook thinks that Apple's strong results in the country are just the tip of the iceberg.

He and Apple look to be right. Apple's success in China underscores the depth of the country's fast-growing upper middle class. As Mr. Cook said, “I've never seen so many people rise into the middle class who aspire to buy Apple products.” It is this large number of aspirational, upwardly mobile Chinese citizens that likely hold the key to Apple's future growth and success as a company.