China Becomes Apple’s Second-Largest Market as ‘Sky’s the Limit,’ CEO Says

By Bloomberg News - Oct 19, 2011 1:39 PM GMT+0700

Apple Inc. (AAPL) said China has become its largest market after the U.S. as the iPhone, iPad and iMac computer maker opened an online store last year and six retail outlets in the past three years in the Asian nation.

China, the world’s most populous country, accounted for 16 percent of Apple’s fourth-quarter sales, or about $4.5 billion, Chief Executive Officer Tim Cook said on a conference call yesterday. Revenue in the nation was almost four times the year- earlier level, he said.

Demand in China was a bright spot in Apple earnings reported yesterday, which missed analyst estimates for the first time in at least six years as iPhone sales lagged behind targets. The Cupertino, California-based company’s sales in the Asian country jumped to $13 billion in the year ended Sept. 24 from $3 billion the previous 12 months, Cook said.

“I’ve never seen a country with as many people rising into the middle class that aspire to buy products that Apple makes,” Cook said on the call. “China, the sky’s the limit there.”

Apple has a network of more than 200 “Apple Premium Resellers” in the country that are focused on the company’s products, Cook said. Combined with other types of resellers and partner China Unicom (Hong Kong) Ltd., the nation’s only carrier now offering the iPhone with a service contract, there are 7,000 points of sale for the iPhone in China, he said.

Largest Market

Even at that rate, Apple isn’t expanding fast enough in China, said Shaun Rein, managing director of China Market Research Group., a Shanghai-based company that advises retailers and other clients about doing business in the country.

“China should be Apple’s largest market, and I think they are actually underperforming here,” Rein said. “They haven’t opened enough Apple stores. Apple needs to accelerate store openings much, much more.”

The China market can sustain 100 or more stores “easily,” Rein said.

Carolyn Wu, a Beijing-based spokeswoman for Apple, said she had no comment on Rein’s analysis beyond remarks made by Cook that the company is “continuing to make investments” in China.

China is the world’s largest mobile-phone market by subscribers, with 940 million users registered as of the end of August, according to the nation’s Ministry of Industry and Information Technology.

‘Feverish’ Growth

The country probably overtook the U.S. as the largest personal-computer market in the second quarter, after three decades of American dominance in an industry pioneered by Apple and International Business Machines Corp., research firm IDC said in August.

Personal-computer shipments in China rose 14 percent to 18.5 million units during the second quarter, the first time they surpassed the number in the U.S., where they fell 4.8 percent to 17.7 million, IDC said at the time.

Apple sales in China, Hong Kong and Taiwan rose to 12 percent of the company’s total last fiscal year, compared with 2 percent in 2009, Cook said on the call.

Revenue is growing “at a feverish pace,” in the region, making it the company’s fastest-growing “by far,” he said.

Apple opened its first store in Hong Kong last month, as well as its third store in Shanghai. The company also has two outlets in Beijing.

“It’s an area of enormous opportunity,” Cook said. “It has quickly become No. 2 on our list of top revenue countries, very, very quickly. We’re obviously placing additional investment. We’re building more stores there, as well as doing quite a few other things.”

Fourth-quarter profit was $6.62 billion, or $7.05 a share, compared with $4.31 billion, or $4.64 a share, a year earlier, Apple said yesterday in a statement. That missed analysts’ predicted profit of $7.31 a share, the first time Apple disappointed in at least 26 quarters.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net