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Apple's China boom continues with 6x revenue growth to $3.8B


Apple revealed Tuesday that its Greater China regional revenue saw a six-fold increase year over year to $3.8 billion, even while company executives admitted that they are barely "scratching the surface" of the Chinese market.

Chief Operating Officer Tim Cook said during the company's quarterly earnings call that "China was very key to [Apple's] results." The region now contributes roughly 13.3 percent of Apple's total third-quarter revenue of $28.57 billion, compared to less than 4 percent in the year ago quarter and approximately 10 percent in the first half of fiscal 2011.

Greater China revenue for the first three quarters of fiscal 2011 stood at $8.8 billion, up from $3 billion for all of fiscal 2010. The region's breakout performance contributed to strong growth for the Asia/Pacific area, which saw sales nearly quadruple year over year.

"This has been a substantial opportunity for Apple, and I firmly believe we are just scratching the surface right now," Cook said. "I believe there is an incredible opportunity for Apple there."

The rapid acceleration of sales in China has surprised even some inside the company. "If any of us would have been told a year ago that we would have done $3.8 billion in Greater China in a quarter, there wouldn't have been very many of us who would have believed it, and probably none of you," Cook noted.

Emerging and developed markets continue to drive iPhone growth, with China playing a big part, while Brazil, Mexico and the Middle East also made significant contributions. "We are really beginning to see the fruits of our labor in these markets," Cook said.

Apple indicated last quarter that the bulk of its emerging market focus has been on China. The company plans to adopt its strategy for the country and apply it to other developing markets.

The iPhone maker has just four stores in mainland China, two in Beijing and two in Shanghai. As part of a dramatic retail expansion set to take place this quarter, the company plans to build its first retail store in Hong Kong.

Recent rumors have suggested that Apple has also negotiated leases on two possible retail locations in Chengdu, China. Executives for the company previously indicated plans to open 25 retail stores in China by the end of 2012.

During Tuesday's conference call, analysts probed whether Apple would multiply its successes by adding additional Chinese carriers and releasing a cheaper iPhone to target the country's mostly prepaid market. Cook dodged the question, while admitting that Apple has yet to "figure out precisely how to play perfectly in the environment." He added that the company has "more to do and more to learn," though he does "feel very very good about [Apple's] progress."

Brian White of Ticonderoga Securities believes the high-end mobile phone market in China could pose a $70 billion opportunity for Apple. According to him, a partnership with third-place wireless carrier China Telecom could bring Apple as much as $9 billion in near-term revenue. Currently, the iPhone is only officially available in mainland China on China Unicom.

Cook was reportedly spotted at the China Mobile headquarters in Beijing last month, fueling speculation that the companies are close to an agreement to sell the iPhone on the world's largest wireless network. Unverified photos showing a test iPhone on the carrier's TD-SCDMA network have strengthened the rumor.