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Apple solves its China syndrome, says analyst

Apple solves its China syndrome, says analyst

'Astounding' quarter in China shows it's sidestepped Mac price problem by selling iPhones, iPads

Apple's efforts in China appear to be paying off, an analyst said today, arguing it's broken into the market by doing an end-around the high price of Macs and selling less expensive smartphones and tablets.

Earlier this week, the company announced record revenues last quarter in China, Taiwan and Hong Kong -- a collection Apple dubs "Greater China" -- that hit $2.6 billion, four times higher than the number for the same period the year before.

Claiming Apple has put "enormous energy into China" over the last year, Tim Cook, Apple's chief financial officer, said that last quarter's results were "absolutely staggering."

Greater China revenues last quarter nearly equaled what the Cupertino, Calif. company brought in from the market for all of fiscal 2010, continued Cook, when Apple posted revenues of just over $3 billion. Apple's fiscal year ended Oct. 31, 2010.

Cook has taken the Apple reins while CEO Steve Jobs is out on medical leave for an undisclosed problem.

Apple has opened four retail stores in Greater China so far -- two in Beijing, one in Shanghai, one in Hong Kong -- which on average were the biggest revenue makers in its 323-store chain, added Peter Oppenheimer, Apple's chief financial officer, during a Tuesday earnings call with Wall Street analysts.

In October, Apple launched a full-service version of its online store for China, and in late September, its mobile partner China Unicom began selling the iPhone 4 .

Apple's iPad tablet is also available in mainland China, although customers can purchase only the Wi-Fi models.

While neither Cook or Oppenheimer broke down Apple's sales in Greater China, one analyst attributed the company's success there to the introduction of the iPhone and iPad .

"The China numbers were astounding," said Ezra Gottheil of Technology Business Research. "That's because the iPhone and iPad have solved Apple's emerging market problem. The high entry price for Macs was giving them major heartburn, but now, with the lower prices [of the iPhone and iPad], problem solved."

The lowest-priced iPad, for instance, costs 3,988 Yuan ($606), versus 7,988 Yuan ($1,213) for the least-expensive MacBook or MacBook Air.

In a note to clients, Gottheil elaborated on his China take.

"Prior to the availability of the iPhone in China, and to the availability of the iPad anywhere, the high entry price of Macs posed a problem for Apple," Gottheil wrote. "The company was not sharing in the rapid growth of emerging markets. Its new non-PC devices are succeeding in emerging markets, and the increase in Mac unit sales show that iPhones, iPads, and retail stores are having a positive halo effect."

Apple's revenues in the Asia-Pacific region, which includes China but excludes Japan, increased by 175% year-over-year, and rose by 83% compared to the third quarter of 2010. Mac sales, meanwhile, climbed 65% year-over-year, bolstering Gottheil's point about a "halo" effect from the iPhone and iPad.

The company has other cards to play.

With the introduction of a CDMA (code division multiple access) iPhone on Verizon next month, Apple will have a smartphone it can sell through China Telecom, the country's mobile network that relies on CDMA technology. According to the CDMA Development Group, China Telecom had 88 million subscribers -- nearly as many as Verizon does in the U.S. -- as of the end of November 2010.

Apple's executives declined to comment Tuesday on plans to bring the CDMA iPhone to carriers other than Verizon when an analyst asked if the company would expand its partner list in China.

"I don't want to comment about any specific country because I view any conversations that we have going confidential in nature," said Cook. "[But] I can guarantee you that we always are looking at opportunities to grow."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@computerworld.com .

Read more about macintosh in Computerworld's Macintosh Topic Center.


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