Apple: Designed in California, Sold in China

The South Bay is Apple’s birthplace and the site where its gadgets are dreamed up.

But the company’s center of gravity is drifting ever closer to China.

Amid the parade of good news delivered during Apple’s earnings call for the ages on Tuesday, the company’s growth in China was one of the highlights. Sales in the country climbed to $16.1 billion in revenue during the quarter, up 70 percent from the same period a year earlier.

Contrary to some analysts’ predictions, Apple did not sell more iPhones in China than in the U.S. during the quarter. But China is dangerously close to surpassing the U.S. as the main driver of Apple’s revenue, and the turning point will likely come next quarter,  analyst Ben Bajarin of Creative Strategies told SiliconBeat.

In China, Apple finds a massive market with ample room for growth. The smartphone market in China has yet to reach 50 percent penetration, while the U.S. market is about 75 percent saturated, Bajarin said.

“China has the most headroom for overall growth,” he said.

Bajarin expected Chinese consumers to snap up more iPhones than Americans this past quarter, but the iPhone’s delayed launch in China and the short supply of the iPhone 6 Plus likely curtailed sales, he said. With the Chinese New Year approaching in February, China is almost certain to overtake the U.S. in Apple’s second quarter, Bajarin said. Though there may be some fluctuation in the next few quarters, Bajarin expects China will be Apple’s top market for good.

Apple executives have made it crystal clear in recent months that China is among their chief priorities. When he traveled to the country in October, Apple CEO Tim Cook was feted much like a head of state, meeting with Chinese Vice Premier Ma Kai at an imperial garden in central Beijing. The company is also embarking on an ambitious building spree, aiming to have 40 stores in greater China by mid-2016.

Apple has made great strides in China over the past year, but the company needs to redouble its efforts if it wants to make the most of the opportunity before it, Shaun Rein, managing director of China Market Research Group, told the Mercury News.

“Apple is succeeding in spite of itself in China because they have bad distribution,” he said.

As executives in Cupertino intensify their focus on China, Bajarin doubts that U.S. fans will be able to detect the shift. The world caught onto Apple long ago.

“They are a global company playing at a global level,” he said.

Above: Apple CEO Tim Cook visits an Apple Store in China (Getty Images).

 

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