Commentary

IPhone Sales Boom In China As Middle Class Expands

Demand for iPhones, particularly in the Chinese market that includes the mainland, Taiwan and Hong Kong, pushed Apple to new heights for its fiscal second quarter. The news overshadowed weakening demand for iPads, which generated less revenue than Mac computers for the quarter as unit sales dropped 23%.

The company is “pulling off a feat rarely seen in any industry, much less the cutthroat world of consumer electronics: gaining market share while also commanding higher prices,” writes Daisuke Wakabayashi in the Wall Street Journal.

“The company said its newest phones are luring more customers away from rivals,” Wakabayashi writes. “We’re seeing a higher rate of switchers than previous iPhone cycles,” CEO Tim Cook tells him, while also citing the expanding affluence of the market overseas. 

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Its gross margin was 40.8% compared to 39.3% in the year-ago quarter, according to a news release, with international sales accounting for 69% of revenue. It posted quarterly revenue of $58 billion and quarterly net profit of $13.6 billion, or $2.33 per diluted share. 

Sales in China rose 72% over the previous year and were greater than those in the U.S. for the first time, Tim Bradshaw reports in Financial Times

“I’ve never seen as many people coming into the middle class as they are in China and that’s where the bulk of our sales are going,” Cook said. “You can’t grow those kinds of numbers without getting significantly into the middle class.” 

If that makes it sound easy — a fresh crop of consumers ripe for the picking — it’s not. Jackdaw Research technology analyst Jan Dawson believes “Apple’s performance “[highlights] its advantages against other American technology companies,” writes the New York Times’ Brian X. Chen.

“It’s hugely important because it shows that Apple continues to be the only major U.S. tech company that is really succeeding in China, in contrast to Google, Microsoft and Amazon,” Dawson tells Chen.

IPads, meanwhile, outsold Mac computers for the quarter — 12.6 million units  vs. 4.5 million — but Apple took in $5.6 billion in revenue from its Mac sales and $5.4 billion in iPads — a reversal of a trend that began back to 2011, Tom Warren points out on The Verge.

The “decrease in iPad sales is likely related to consumers not refreshing tablets as much, a lack of big improvements to the iPad, and the fact that smartphones are still revolutionizing the industry more than tablets,” Warren observes.

Not to mention wearables.

Cook told analysts on an earnings call transcribed by Seeking Alpha that the third quarter is off to “an exciting start,” Reuters reports

He did not release sales figures for the Watch that first went on sale last week, saying “from a demand point of view, it's hard to gauge when you don't have product in stores.”

Bill Rigby, Devika Krishna Kumar and Yasmeen Abutaleb point out that Apple is “only selling the watch online and in select third-party boutiques due to the large number of models and straps for the watch, which could become a logistics nightmare if it offered every permutation of the many varieties at already jam-packed Apple stores.”

Every enterprise should have such disturbances to its sleep patterns, right?

“Cook noted that there are already 3,500 apps available for the Apple Watch, which is remarkable for a smartwatch that has been in some customers' hands for all of four days,” David Goldman reports for CNN Money. “We're far ahead from where we expected to be from an application perspective,” Cook said — adding that the iPhone launched with 500 apps, and the iPad with 1,000.

Meanwhile, the Apple board increased its share repurchase authorization to $140 billion from the $90 billion announced last year and also approved a dividend of $.52 per share, an 11% increase. “While most of our program will focus on buying back shares, we know that the dividend is very important to many of our investors, so we’re raising it for the third time in less than three years,” Cook said in a statement.

Let’s see. At $549 before tax for the basic Watch — for which visually lyrical "films" broke the other day — all you need is 1,056 shares (worth $140,078 this morning after a 1.82% bump yesterday), to roll over that forthcoming May 14 dividend check into some arm candy.

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