Apple: Time to Buy

Developer of most innovative products, Apple (AAPL) continues with a string of strong results in Greater China this year. The company for the first-quarter reported record sales of $18.4 billion in Greater China, representing an increase of 14% year-over-year and 47% sequentially. This growth in its sales is largely driven by a superior sales momentum for iPhone 6, which was partially offset by the effect of weakness in foreign currencies relative to the U.S. dollar.

What next?

Looking ahead, the tech giant expects the sales momentum in Greater China to continue despite current economic softness.
Apple sees hefty revenue growth opportunity in the region as a large number of Chinese consumers continue to enter the middle class with greater disposable income.

According to Business Insider, the middle class population in China is growing rapidly with the growth of overall economy as more and more people are coming to metro cities for better paying jobs. The report forecasts 326 million new middle class people to enter into China’s urban area between 2014 and 2030, thus taking its toll to approximately 854 million in urban area.

The middle income group has the largest growth between 2015 and 2025, allowing Apple to accelerate its sales for iPhone 6S and 6S Plus. In fact, this strong growth of nearly 62% in urban population creates opportunity for its other products such as iPad, and Mac as well as its services like the app store, iCloud, AppleCare.

More importantly, the increase in disposable income will further assist Apple to tap this growth in urban population at a higher clip. As reflected in the above graph, the per capita income in urban area will exceed $30,000 in purchasing power parity terms by 2030, up nearly 200% from the current level of $10,000. This is an incredible growth that should drive growth for Apple’s product and services in the region.

Making smart moves

Meanwhile, Apple is aggressively investing to maximize this growth opportunities in the region. The maker of iPhone has approximately 28 stores in mainland China and plans to extend it to 40 stores by this summer. The company’s goal is to serve every customer in every city in the long-run that serves approximately 250,000 customers a week in its four Beijing retail stores currently.

However, these new stores will be opened in other fast growing cities such as Chongqing, Shenzhen and Shanghai. These cities have observed tremendous growth in terms of creating employments of late. So, the move to invest in these cities will further gear up its sales momentum in Greater China. Its Chief Executive Officer, Tim Cook said, "We're investing like crazy in the market due to an enormous market potential where there are more people graduating into the middle class than any nation on Earth in history.”

In addition, Apple after having experienced growing popularity of mobile payment in the United States plans to launch Apple Pay in China, Hong Kong, Spain and Singapore this year. Earlier in the first-quarter, the company had launched Apple Pay in Canada and Australia with American Express. This very app has generated tremendous amount of money for Apple in the second-half of fiscal 2015 with the growth rate of 10 times higher than in the first half of the year.

So, lining of investments such as these will enable the company to tap the growing demand for smart phone in China at a higher clip. As per a report by IDC, China remains the largest market for smart phone volumes and joins North America and Western Europe in a more mature growth pattern. However, steadily falling average selling prices (ASPs) will fuel steady growth through the end of the forecast period, with global shipments reaching 1.9 billion units in 2019.”

Conclusion

Apple has consistently improved its sales numbers in Greater China through various growth oriented investments, despite tough competition and softness in the economy. This clearly states its ability to perform well under any downturn. However, China has strong growth prospects and Apple through its strategic investments plans to get the most from this growth opportunities. The tech giant has a goal of expanding its reach in almost all the cities in the long-run that will drive its growth significantly in the future.
Published on Feb 19, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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