“The one big blemish in Apple’s earnings was made in China. As reported in its Q2 earnings, Apple’s revenue in China dropped 14% year-over-year and 34% quarter-over-quarter,” Matt Asay writes for TechRepublic. “The big slip comes from the iPhone, which must compete with Chinese brands Oppo and Vivo, among others, leading one analyst to declare Apple has ‘hit a ceiling’ in China.”
“Lost in this hand-wringing, however, is an amazing accomplishment: Apple seems to have cracked the code on selling to China,” Asay writes. “The very fact that Apple can sell premium products like the Mac and iPhone in China, coupled with an ability to sell services, demonstrates unparalleled brand power.”
“This is a market that historically hasn’t paid for software, and barely pays for hardware. It’s a tough market for Western companies, but Apple made over $10 billion there last quarter, registering double-digit growth in a PC market that is in decline globally, and has never paid much in China. It’s also registering double-digit Services growth,” Asay writes. “It’s time to recognize just how remarkable and unprecedented that is.”
Read more in the full article here.
MacDailyNews Take: Again, Apple’s Services business is a tremendous machine that hasn’t yet even begun to gallop.
Excerpts from Apple CEO Tim Cook during Apple’s Q217 conference call with analysts on May 2, 2017:
For the second quarter in a row, our Services revenue topped $7 billion, and it’s well on the way to being the size of a Fortune 100 company. We’re very happy to see the deep level of customer engagement with the Apple ecosystem across all of our services.
App Store momentum is terrific, with revenue growing 40% year over year to an all-time quarterly record. The number of developers offering apps for sale on our store was up 26% over last year, and we’re thrilled to see their success.
We also saw double-digit revenue growth from Apple Music subscriptions and iCloud storage and overall very strong growth in the total number of paid subscriptions for our own services and the third-party content we offer on our stores. Paid subscriptions now exceed 165 million.
Apple Pay is experiencing phenomenal traction. With the launch of Taiwan and Ireland in the March quarter, Apple Pay is now live in 15 markets with more than 20 million contactless-ready locations, including more than 4.5 million locations accepting Apple Pay in the U.S. alone.
We’re seeing strong growing usage as points of acceptance expand, with transaction volume up 450% over the last 12 months. In the UK, for example, points of acceptance have grown by 44% in the last year, while monthly Apple Pay transactions have grown by nearly 300%. In Japan, where Apple Pay launched last October, more than 0.5 million transit users are completing 20 million Apple Pay transactions per month. And we’re always excited to see our partners bring their customers new ways to use Apple Pay. You can now even send a Starbucks gift card via iMessage with just a touch.
Of course, there are several customers that subscribe to more than one of our services. There is some level of overlap, but the total number of subscribers is very, very large, obviously less than 165 million. But it’s very good for us to see the breadth of subscriptions that we offer and that customers are interested in. It’s a large number.
And if you remember, we quoted the same number a quarter ago and we talked about 150 million. So when you think about a sequential increase of 15 million subscriptions from the December quarter to the March quarter, it really gives you a sense for the momentum that we have on our content stores. It’s quite impressive to add 15 million subscriptions in 90 days.
As we look at the dynamics that are happening on our content stores, particularly on the App Store, which is the largest, we see fairly consistently two things. We see that the number of paying accounts is growing a lot. And I mentioned the increase in number of paying accounts that we value in this last 90 days is the largest that we’ve ever had. So this very large number of people coming into the ecosystem, experiencing the ecosystem, which is obviously improving all the time in quality and quantity, and then start paying and transacting on our stores, and that number is growing very, very strongly, strong double digits.
What we’re also seeing as we look at people that start paying on our stores, we see a pretty common trend over time. And we keep track of that across cohorts of customers, that as people come into the ecosystem and start paying on the ecosystem, we see a spending profile that is very similar around the world. People start at a certain level and then they tend to spend more over time. And so obviously, the combination of people spending more over time and adding more people that are now actually spending on the stores contributes to this 40% growth that Tim mentioned for the App Store on a year-over-year basis.
Excerpts from Apple CFO Luca Maestri during Apple’s Q217 conference call with analysts on May 2, 2017:
Turning to Services, we generated $7 billion in revenue, an increase of 18% year over year and our best results ever for a 13-week quarter. We’re very happy with the strong level of growth, especially given the tough compare to last year, as the busy week between Christmas and New Year’s fell within the March fiscal quarter a year ago but was included in the December fiscal quarter this year. As we said last quarter, our goal is to double the size of our Services business by 2020.
The App Store established a new all-time revenue record and grew 40% year over year. We continue to see growth in average revenue per paying account as well as the number of paying accounts across our content stores during the quarter. In fact, the quarterly increase in the number of paying accounts was the largest that we’ve ever experienced. And according to App Annie’s latest report, the App Store continues to be the preferred destination for customer purchases, generating twice the revenue of Google Play during the March quarter.
SEE ALSO:
Dispelling the Apple Services myth – May 3, 2017
Apple’s Services (App Store, Apple Music, Apple Pay) business is an unstoppable juggernaut that’s still just gathering strength – May 3, 2017
It’s no longer all about the iPhone; Apple’s services revenue is growing at an impressive clip – March 15, 2017
AAPL Surely is DOOMED … to the the tune of $250 Biiiiiiiiiiiiiiiilion Dollars 💰🤔…. So very DOOMED… .!.. read between the lines NAYSAYERS .!.. up Yours!
Ps. Looking fwd to my dividend “”reinvestment”” 😉
Doomed indeed. A 12K investment in 2006 is now worth over 250K.
Good point, but it’s also true in lots of countries considered fortresses to foreign companies like South Korea. No one has had success in S Korea, until Apple’s iPhone entered the market. No one has had any success in Japan, until the iPhone entered. Apple is a huge success in China where few foreign companies succeed. I’m not sure there are many Chinese companies making more in China than Apple makes in China. Maybe the oil company, but seriously, it’s shocking to think about how successful Apple has been around the world. Most people take it for granted, but lots of foreign markets are hard nuts to crack.
Even those companies who have some foreign market success do it by undercutting the home incumbent on prices, since the vast majority of profit is typically earned in home markets. Thus their foreign profits are quite a lot smaller. Not Apple. An amazing business story getting more amazing every year. B-school grads will be studying Apple for decades.
I remember a few years back before Apple started selling iPhones in China. There were people who swore no one in China would be buying iPhones because they were too expensive and Samsung already had that market locked up tight. Apple had/has some pretty decent sales records in China but the moment sales start falling off, Apple is doomed because Chinese Android smartphones are just as good as iPhones and a hell of a lot cheaper. The thing is, I’m still coming across articles about the people in China who are still hungry for iPhones. I can honestly understand if Chinese consumers prefer to purchase their own domestic brands and I respect them for it. However, just because iPhone sales drop for a quarter or two, that doesn’t indicate no one in China wants iPhones.
It’s just that iPhones are expensive and it’s likely Chinese consumers are smart enough to hold onto their iPhones for a couple of years before buying a new one. I don’t think any company can constantly sell high-end products in quantity, quarter after quarter in China. Wall Street must think the Chinese consumer has an endless supply of money just for smartphones.