SAN FRANCISCO — Apple is famous for setting trends.
In China, though, Apple has found success by following one.
For
years, Apple rivals like Samsung offered large-screen smartphones.
Although the bigger phones sold well in China, Apple held off on
releasing a similar model, and the country remained a weak spot. But
Apple introduced its own versions last September, and now the sales
spigot is wide open.
The company on Tuesday reported
$16.1 billion in revenue from “greater China” — which includes mainland
China, Hong Kong and Taiwan — in its first fiscal quarter, up 70
percent from the same period a year ago. Canalys, a research firm,
estimates that Apple is now the No. 1 smartphone maker in China.
The
success in China helped push Apple to a blockbuster first quarter,
increasing overall profit to $18 billion and revenue to $74.6 billion.
In the same quarter a year ago, the company had profit of $13.1 billion
and revenue of $57.6 billion.
Overall sales of iPhones shattered analysts’ predictions. Apple said it sold 74.5 million iPhones in the quarter, as many as 12 million more than expected.
Timothy D. Cook, Apple’s chief executive, said on the company’s earnings call that excitement in China over the new phones, the iPhone
6 and iPhone 6 Plus, was “phenomenal.” He also noted that the new
iPhones had attracted the highest number of customers who switched from
an Android device.
“It’s an incredible market,” Mr. Cook said. “People love Apple products. And we are going to do our best to serve the market.”
Not
too long ago, sales of Apple products in China were slipping. Last
October, Apple was the No. 6 smartphone maker in China, trailing its
Asian rivals Huawei, Lenovo, Samsung, Xiaomi and Yulong, according to
Canalys.
For
Apple, gaining a foothold in overseas markets like China has become
increasingly vital. Its growth has slowed over the last few years as the
smartphone market has become saturated in the United States and parts
of Europe.
Over
the last couple of years, Apple has made a series of moves to compete
more aggressively in China. In late 2013, it reached an important deal
to sell iPhones with China Mobile, the largest wireless network in the
world, with more than 800 million subscribers. The company also
continues to build its operations in greater China and has plans to open
25 new stores over the next two years, adding to the 15 stores it
currently operates in the region.
In
2013, Apple released the iPhone 5C, a lower-cost version of the
smartphone that analysts thought would help increase its growth in
China. But the latest numbers suggest that consumers in China wanted
bigger iPhones, not cheaper ones.
In
an interview, Luca Maestri, Apple’s chief financial officer, declined
to say how many iPhones were sold specifically in China. But he said
that iPhone sales in greater China were up 83 percent compared with the
same quarter a year ago.
Mr.
Maestri also noted that iPhone sales were still higher in the United
States than in China. Some earlier news reports had predicted that
Apple’s sales in China would surpass sales in the United States.
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Most
of Apple’s revenue in the quarter came from the Americas, where Apple
reported $30.6 billion in sales. Mr. Cook recently said it was only a
matter of time until most of Apple’s sales came from China.
The
company’s overall revenue, almost $75 billion, easily beat analysts’
average estimates of $67.7 billion, according to a poll by Thomson
Reuters. The company’s shares, which have gained more than 50 percent in
the last year, rose more than 5 percent in after-hours trading.
Ben
Bajarin, a technology analyst for Creative Strategies, said Apple’s
earnings showed that it did not hurt for the company to be late to
releasing larger smartphones.
“Everybody
was saying they’re losing share — maybe they’ll never get it back,” he
said. “Sure enough, there was tremendous demand. The fact that they
weren’t first didn’t really hurt their customer base.”
Strong
sales of Macs also contributed to the company’s growth. The company
said it sold 5.5 million of the computers in the quarter, up from 4.8
million in the same quarter of last year.
But iPad
sales continued to shrink. The company sold 21.4 million iPads in the
quarter, down 18 percent from 26 million in the quarter a year ago.
Mr.
Maestri said it had become clear that customers were upgrading to newer
models of iPads more slowly than they upgraded iPhones. But he said the
company was pleased with overall customer satisfaction with iPads.
“We feel confident about the future of iPad,” he said.
On
the earnings call, Mr. Cook said he continued to be optimistic about
the iPad, partly because there were still many customers buying iPads
for the first time. Over 70 percent of people buying iPads in China are
first-time buyers, he said.
Increasingly,
though, the company’s fortunes rely on the iPhone. Sales of iPhones
accounted for 69 percent of the company’s revenue in the quarter, up
from 56 percent in the same quarter a year ago.
“A
bet on Apple is increasingly a bet on the iPhone,” said Toni
Sacconaghi, a financial analyst for Sanford C. Bernstein & Company.
“The good news is, iPhones are great. The bad news is, right now that’s
driving over 100 percent of the revenue growth of the company.”
Many
investors would like to see Apple’s revenue be more diversified, which
is raising some of the expectations for Apple’s coming entry into the
smartwatch market.
On Tuesday, the company said its smartwatch, the Apple Watch, was set to be released in April.
Mr. Cook said he had been wearing his Apple Watch every day.
“I can’t live without it,” he said.
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