Apple set for considerable growth in China

24 March 2010

BEIJING: Apple, the consumer electronics company, is gaining in popularity with shoppers in China, a study by Morgan Stanley, the investment bank, has found.

The maker of the iPod and iPad recently announced plans to open 25 new retail stores in the world's most populous nation, complementing its current flagship outlet in Beijing.

Sales of its Mac computers also almost doubled in China in the last quarter, while 200,000 iPhones have been delivered to date through its partnership with China Unicom.

However, the Mac currently holds just a 1% share of its category in the rapidly-growing economy, with the iPod on a similar figure, compared with totals of 6% and 20% in the US respectively.

Equally, the rate of smartphone penetration has only reached 3% in China thus far, measured against a comparative level of 25% in the US.

However, Katy Huberty, a Morgan Stanley analyst, argued in a research note that a number of trends suggest that "China represents Apple's next major geographic growth opportunity."

More specifically, her research covering the company's previous experience in the US, Western Europe and Japan revealed there was a "positive correlation between Apple store expansion and Mac market share".

Morgan Stanley also interviewed 1,050 "high-end Chinese consumers" – said to be representative of an "addressable audience" of 50 million people – in December last year to discover their views.

It found there was a "strong underlying demand for Apple products" discernible among the members of this demographic.

"What's more, Chinese Apple product owners are 2x more likely to purchase future Apple products according to our survey," Huberty added.

"We believe Apple's investment in China targets the revenue upside from this halo-effect."

In a conference call with investors in January, Tim Cook, Apple's chief operating officer, displayed considerable optimism about the firm's prospects.

"We have just really got going in China. I really like what I see so far. Although the average income is not nearly as high as perhaps the United States and some other western European markets, there is a significant size middle class," he said.

"In fact, if you look at greater China last quarter – which is China, Hong Kong and Taiwan – our revenues tripled year-over-year in that geography … We have a tremendous focus on it."

Data sourced from All Things Digital; additional content by Warc staff