The secret to Apple’s unprecedented $18 billion quarter

“Everyone knows the iPhone was critical to Apple’s success from a product perspective. From a market perspective, the financial media has not given a lot of coverage to the reason for Apple’s resounding earnings beat,” Bob Ciura writes for Seeking Alpha. “Apple owes a lot of its success last quarter to China, which is the biggest geographic opportunity for the company going forward, by far. Apple’s growth in China is truly amazing, but there have been a number of articles lately raising fears about the perceived threat of cheaper devices eating into Apple’s market share. Most notably, concerns of competition from privately-held Xiaomi have gotten a lot of attention.”

“Now that we can see exactly how Apple performed last quarter in China, it’s clear that the Apple bears were completely wrong,” Ciura writes. “The idea that cheaper devices that mimic the iPhone would steal away sales from Apple was flawed from the start. To me, it demonstrated a misunderstanding of consumer behavior. I felt it was a mistake to assume electronics were some sort of a commodity, where consumers made their decisions based solely on price. Price is a driver for some, and that helps explain Xiaomi’s growth. But for most customers, value, differentiation and brand quality are more important aspects of the decision-making process, particularly when it comes to smartphones. And, for those whose primary driver is in fact price, they most likely would not have purchased an Apple device anyway because they could not afford one. This is why Apple was never truly in danger from cheap copycats such as Xiaomi.”

“On the earnings call with analysts, Apple stated its ASP (average selling price) for iPhones actually went up last quarter, by $50 per device, from the previous quarter. Clearly, the brand remains incredibly strong,” Ciura writes. “Xiaomi may look and feel like an iPhone, but the bottom line is that it isn’t an iPhone, and buyers know this. Only Apple can provide the ecosystem and customer experience that makes the brand so valuable. This is not to say that Xiaomi has not been successful. Indeed, the media recently reported that Xiaomi passed Samsung to become China’s second-largest device seller (behind Apple). But Xiaomi will never steal customers from Apple. It’s stealing customers from other device makers at lower price points, like Samsung and Lenovo.”

Read more in the full article – recommended – here.

Related articles:
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Apple iPhone No. 1 in China smartphone market share – January 27, 2015
Apple Inc. posts biggest quarterly earnings of any company ever – January 27, 2015
Apple destroys Street with all-time record earnings – January 27, 2015
MacDailyNews presents live notes from Apple’s Q414 Conference Call – January 27, 2015

11 Comments

    1. Let me add: Concentrate on user experiance. Make that number one priority.
      – Happy customers buy and buy again.

      I would like to see a small bit of software design choice. iOS 8 or classic iOS 6 look. Just like the iPhone size, it is a personal choice. I know many users that would love to have iOS 8 look like iOS 6.

      But back to the human interface. That was and should be Apple’s main priority. Read many blogs for visually impaired people that are still struggling with the step backwards iOS 7 and 8 took. Sad. This is going to affect the biggest buying group in the US. Aging baby boomers. Lots of eye sight going bad. Hope Apple revisits this.
      Gray text on white. Who was the idiot that thought that up.

  1. Correction:

    “Xiaomi phones may give the appearance of an iPhone at a glance, but no one would mistake one for an iPhone if they tok a closer look or actually held one in their hand, much less used it.”

  2. This explains why Google came out with Google one, and was not worrying about stabbing there original OEMs in the back. With Apple doing so well in China and taking market share from Samsung Google needed to do something fast to keep Android from having a shrinking market share. By aggressively going after the feature phone market google can keep the android brand expanding by making it very easy to make low end Android phones. They have given up on the high-end smart phone market.

  3. Hasn’t this been obvious now for years? Wasn’t Samsung and so many others trying to do the same thing and are now failing miserably?

    I also think the seamless (most of the time, anyway!) ecosystem Apple has built around its iDevices plays a big role. I have a friend who wanted to get an Android due to price considerations – but paid up instead for an iPhone because her priority was to Facetime with her kin in Australia.

  4. Judging by the performance of analysts and media, particularly WSJ, on evaluating Apple’s business strategies, products and financials, I wonder about their competency in other areas of industry and commerce.

  5. If anyone runs across an analyst who has the integrity to say, “You know, I just don’t understand how Apple works. Maybe you’d better stop listening to my recommendations on this stock. And I’ll let Tim Cook and the Board run the company and stop giving them advice,” please post it here. I’ll be checking back every so often…

  6. china: when you’re hot your hot. when you’re not you’re not.
    apple needs to be very careful when it deals with china.
    in terms of bowing down to china (governmental) regulations that encroach on human rights, microsoft capitulated. google hasn’t yet.
    now tom cook has decided that the opportunity in china is worth it to the extent to allow the PRC government to pre-inspect iPhones sold in china supposedly to see if the phones contain backdoor NSA hacks.
    but just after tom cook’s decision to do allow that, the very next day we see reports that china is now saying that it has a right to even put tracking software on phones sold in china.
    apple needs to be very careful indeed when it comes to supposed “opportunities” that involve china.
    scenario: xiaomi becomes world class. huawei becomes even bigger. these are chinese companies. in the end PRC can and does exercise limitless control over these companies.
    apple is not chinese. its interests in the long term are clearly inter-national, not national. and therefore will at some point run counter to what the PRC allows or deems acceptable to be sold in its territory.
    within a day or two the chinese government is capable of stirring mass reactions against foreign brands. it has happened time and time again.
    Angela Ahrendt’s fashion brand Burberry will always be acceptable in china. its non-political and non-threatening to china.
    apple is more and more about communications and connectedness. and more than ever its about being able to look at your customers in the eye and tell them that you do protect their privacy.
    apple and tom cook’s thinking that they can’t do without china may prove to in actuality their achilles heel.

  7. Apple’s 4Q/2014 revenue in China alone almost equals Google entire revenue for their entire 3Q/2014.
    And since Apple’s margins are 39%, vs~ 20%, I’m guessing their profits were actually greater.

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