Apple’s Tim Cook Says China Will Usurp U.S. to Become Top Market

| Analysis

Apple delivered a strong message to Wall Street on Tuesday: your concerns over our business in China are much ado about nothing. During the company's quarterly conference call with analysts, Apple CEO Tim Cook took several opportunities to stress how robust sales are in China, and to say he believes it will become Apple's top market.

Stacks of Yuan with an Apple Wrapper

Stacks of Yuan with Apple wrappers

Wall Street as a whole has been concerned about China's economy, which is in the midst of a slowdown. These concerns apply to Apple in particular because China has been a strong source of growth for the iPhone maker for years. If China is slowing down, go the concerns, Apple could be especially hard hit.

The only thing wrong with that reasoning is that reality refuses to cooperate. Apple has turned in very strong growth in China quarter after quarter—that not only included the just-completed September quarter everyone was worried about, Tim Cook said he expects it to continue.

Sales in Greater China, a region that includes nominally independent Hong Kong and actually independent Taiwan, rose 99 percent to $12.5 billion. Sales of iPhone specifically in Mainland China rose 87 percent, where the smartphone market as a whole rose just 4 percent.

Mr. Cook said that if you backed iPhone sales out, the smartphone market would have been negative year over year. He also said two of the top three selling smartphones in Mainland China were iPhones.

"We've been able to grow without the market growing [in China]," Mr. Cook said. "iPhone 6 was the number one selling smartphone in Mainland China last quarter, and iPhone 6 Plus was number three. So, we did fairly well."

I have to take a moment to deliver mad props to Mr. Cook for making a devastatingly snarktastic comment in a remarkably understated fashion. "So, we did fairly well" is like saying "Having $205 billion in the bank is pretty good."

He didn't stop there, however, as he made the case that—for Apple—there is no economic slowdown in China, saying:

Frankly, if I were to shut off my Web and shut off the TV and just look at how many customers are coming in our stores regardless of whether they're buying, how many people are coming online, and in addition looking at our sales trends, I wouldn't know there was any economic issue at all in China.

I don't know how unusual we are with that. I think that there's a misunderstanding probably, particularly in the Western world about China's economy [that] contributes to the confusion. [...] It's hard to tell a difference at the consumer level for us. You really can't tell a difference if you look at our daily and weekly numbers.

Those are strong words, especially from a CEO as careful and particular about everything he says as is Tim Cook. But even then he wasn't done, as he took this moment in the conference call to remind analysts that his company thinks long term, even in China.

"So we're very bullish on [China]," Mr. Cook said. "I would point out that we're investing in China not for the next quarter or the quarter after or the quarter after, we're investing for the decades ahead. As we look at it, our own view is that China will be Apple's top market in the world, and that's not just for sales. The developer community is growing faster than in any other country in the world. The ecosystem there is very, very strong."

The U.S. has always been Apple's top market, with Europe usually coming up second. In recent quarters, China replaced Europe for second place, however, and Mr. Cook sees a future where it will be number one.

A factoid he tossed out to bolster that belief is that China's "middle class" population is currently counted at 50 million. Mr. Cook said that number will grow ten fold to 500 million, a number far larger than the 320 million people the U.S. has for its entire population. Unstated, but implied, is Mr. Cook's belief that those folks will aspire to own Apple devices.

There is no doubt that absent a civilization-ending collapse, China will become an ever-greater part of the world's economy. What effect this has on Apple remains to be seen, but with the company making more and more and more money in that country, the needs of the Chinese consumer (and possibly its government) will, by definition, become more important to Apple Inc.

Image made with help from Shutterstock.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Usurp: To take (a position of power or importance) illegally or by force.
As this is just a natuaral change, not a criminal or military action, perhaps a better word would be
Supplant: To supercede or replace.

Sorry, I’m feeling unusually grammernaziish this morning.

Lee Dronick

Not a military action, but I have concerns about conflict involving China. It may be hot, or it may be warm, but something could happen over control of the South China Sea.


Agreed. Their Nine Dashed Line claim is a completely unjustified land grab. There have already been skermishes with Viet Nam and I see it escelating. Unfortunatly if it goes to the UN Putin will side with the Chinese to block any sanctions because he has his own land grab going on in the Arctic. I expect serious conflict in the next quarter century.

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