Thanks to an arrangement with Chinese government authorities that allowed Apple to launch the iPhone 5s and 5c in China simultaneously with its U.S. launch, Apple was able to sell a record number of iPhones in China during its first fiscal quarter, Apple CEO Tim Cook said in an interview this week with CNBC. Investors shouldn't expect this to be the last time Apple reports record quarterly iPhone sales in the region. With China Mobile now on board, Apple's potential in the region looks optimistic.
Greater China's impact on Apple's Q1 results
As both Apple's largest contributor to revenue and operating profits, the iPhone is a major driver of the company's business. So if iPhone sales in Greater China during Q1 reached record highs, you can bet it benefited the region's total performance. Assuming Greater China revenue approached its record high of $8.2 billion in Apple's second fiscal quarter of 2013, Apple's Greater China revenue could be about 20% higher in Q1 from the year-ago quarter.
A projected 20% jump in Greater China revenue during Apple's first quarter would likely have a meaningfully positive impact on Apple's total revenue. As its third-largest segment (measured by revenue), Greater China sales accounted for a significant 19% of revenue in Q2 2013 when Apple reported record Greater China sales -- so double-digit growth in the region is certainly significant for the company.
Of course it's not really a surprise that Apple's third-largest region (measured by revenue) is going to have a robust quarter. If that wasn't the expectation, Apple wouldn't have guided for its highest total revenue quarter ever in Q1.
But now that investors are confident that Apple's performance in Greater China was solid, there is a higher probability that Apple will report revenue toward the high end of its guidance. Indeed, Apple guru Horace Dediu published his revenue estimates for Apple's first quarter yesterday, estimating revenue to come in at $57.8 billion; Apple guided for $55 to $58 billion.
While China may help Apple report solid results in Q1, investors should be more concerned with the long-term outlook for Apple in China. If Apple can't continue to be successful in China over the long haul, who cares about one quarter?
To digest Apple's opportunity in China over the longer-term, investors only need to look as far as China Mobile to get a sense of optimism. As it is the world's largest carrier with 763.3 million wireless customers, Apple's recent arrangement to sell iPhones through it is an enormous opportunity.
While only 24% of China Mobile's customers use 3G, that base of users is growing rapidly. Consider this: Between October 2013 and November 2013, China Mobile added about 5 million 3G subscribers. Year over year, China Mobile's November 3G subscribers are up a whopping 112%.
Early signs of Apple's potential in the region suggest Apple won't be left out from the benefits of China Mobile's rapid growth in 3G customers. China Mobile Chairman Xi Guohua told CNBC that it has already taken millions of preorders for the phone that goes on sale tomorrow. Of course customers can also come from China Mobile's existing 3G base if they decide to switch to an iPhone.
How big is the opportunity?
That's really the only question to be asked about Apple's potential in China right now. Asking whether or not there is opportunity for growth at all isn't really an accurate picture of Apple's story in the country. I've yet to see any convincing evidence that suggests Apple's sales could begin to deteriorate in China. To the contrary, the general sentiment is that Apple has excellent potential in China over the longer-term.
But to get an idea of the potential Apple has in China, just consider the analyst estimates for incremental iPhone sales through China Mobile in 2014. They range from 5 million to 39 million.
Fortunately, all it will take is one meaningful growth catalyst for Apple investors to have a good chance of seeing solid gains over the long haul at today's conservative valuation for Apple stock. Could China serve as this catalyst? It looks likely.
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The article Don't Underestimate Apple's Opportunity in China originally appeared on Fool.com.Fool contributor Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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