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Emerging Markets Contribute to Apple’s Growth

Posted on Monday, Apr 28th 2014

According to IDC, worldwide smartphone shipments are projected to grow 18% annually over the period 2013 through 2017 to 1.7 billion units. Growth will be driven by the emerging markets of Asia Pacific and Latin America both of which are projected to grow more than 23% annually during this period. By 2017, Asia Pacific markets will account for 58.5% of the market share at 986 million units compared with 52.3% share in 2013. Europe will be the second largest market with 15.5% of the market and growing 11% annually. North America will account for 11% of the market and grow a comparatively modest 7.8% annually.

Apple’s Financials
Apple’s (Nasdaq: AAPL) second quarter revenues grew 5% over the year to $45.65 billion, significantly ahead of the Street’s targeted $43.7 billion. EPS of $11.62 was also ahead of the market’s forecast $10.19.

During the quarter, Apple sold 43.72 million iPhone units, compared with the market’s estimates of 37 million- 38 million. Apple sold 16.35 million iPads, 4.14 million Mac computers, and 2.76 million iPods.

By segment, revenues from iPhones grew 14% to $26.1 billion. iTunes, Software and Services segment grew 11% to $4.57 billion. Apple reported cumulative App downloads at 70 billion and the App store’s revenues grew 85% over the year. Revenues from Macs increased 1% to $5.52 billion. iPad sales were disappointing with revenues falling 13% to $7.61 billion. It appears that other more inexpensive tablets are finally eating into iPad’s share. iPod revenues fell 52% to $0.5 billion. Retail revenues remained flat at $5.22 billion.

For the current quarter, Apple forecast revenues of $36 billion-$38 billion, falling short of the Street’s estimated $37.9 billion.

They also announced a seven-for-one split of their stock to be effective in June this year.

Apple’s Emerging Market Focus
Apple’s recent investments in emerging markets have driven strong results. During the quarter, they opened their first stores in Brazil and Turkey. The expansion of distribution channels in the emerging markets has also helped grow sales. In the first half of the year, Apple saw sales in Brazil grow 61%, Russia grew 97%, Turkey reported a 56% hike and India was up 55%. Their agreements with NTT and China Mobile helped drive sales in Greater China by 13% to $8.84 billion and in Japan by 26%.

Apple also had impressive growth in Vietnam, where they saw iPhone sales triple over the year and revenues grow 262%. Analysts believe that the social status associated with an iPhone is driving sales upwards. Vietnamese are willing to pay more than two months of their salaries to purchase an iPhone and that is proving good for iPhone sales.

The growth in iPhone sales in these markets is, however, coming at a price. Apple saw average sales price (ASPs) of their iPhone division fall $40 over the previous quarter as most users are choosing to go for the lower priced versions such as the iPhone 4S. IDC’s report had also estimated that the increase in phone sales will correspond to a decline in phone ASPs. IDC projects that ASPs of smartphones will post an annual decline of 7.3% to $265 in 2017 from $337 in 2013. Steep drops in prices will be recorded in APAC and Europe markets where the sale price is expected to drop 9% each to $215 and $259, respectively. Only the North American markets will continue to report a price increase, albeit at a modest 2%.

Apple’s stock is trading at $567.76 with a market capitalization of $506.4 billion. It touched a 52-week high of $575.14 in December last year.

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