President Obama and President Xi Jinping in Beijing (photo: Agence France-Presse/Getty Images)
A trade agreement reached between the U.S. and China looks set to reduce Apple’s manufacturing costs by removing import tariffs on components imported into the country.
Apple uses components from a number of countries around the world, notably Korea and Japan, which are imported into China for the assembly of iPhones, iPads and Macs. China currently imposes import tariffs on these components. The new deal would allow companies like Apple, Microsoft and HP to bring components into China free from these charges … Expand Expanding Close
Apple’s efforts to secure the China Mobiledeal were long, drawn out and likely involved rather more negotiation than the company is used to. But if you ever had any doubts as to the importance of those efforts in China, Japan and elsewhere in the Asia-Pacific region, the above two charts, compiled by Fortune, make the reason very clear.
The bad news for Apple is that revenue from its two biggest segments — Europe and the Americas — have begun to contract, not just as a percentage of total revenue, but in dollar terms as well. The good news is that Japan, Asia Pacific and Greater China have so far more than taken up the slack. In Q1 2014, Apple’s combined Asian sales were $17.4 billion, more than Europe ($13 billion) and closing in on the Americas ($20 billion).
After launching a new iPhone trade-in program through its retail stores in the U.S and UK and another initiative in India, Apple appears to be planning even more trade-in programs in emerging markets. A new job listing posted on the company’s website seeking a Reuse (Trade-In) Worldwide Program Manager is looking for someone to assist in “developing and implementing programs in emerging markets, with emphasis in APAC and ALAC, while enhancing current EMEIA and North American programs.”
That sounds a lot like Apple is planning to launch new trade-in programs in some of its emerging markets across Asia Pacific (APAC), Latin America and the Caribbean (ALAC). Apple describes the trade-in programs as a “mega trend” and lists its objectives as increasing its share of the used electronics market and “reducing the flow of Apple-branded materials into unauthorized markets, which tarnish the Apple Brand.” The job listing adds, “Scaling these programs to keep Apple on the leading edge of this emerging mega trend is a priority,” something it has already started doing in recent months with its new retail store trade-in program in the US and UK.
Just hours after going live for sale in several countries in the Asia-Pacific, all models of the iPad Air have become “currently unavailable” at the Hong Kong store. The store opened up with a quote for 1-2 week shipping times, which was substantially longer than the 24 hour shipping times seen in countries such as Australia. Overall, at least in the United States and Europe, iPad Air supplies are expected to be plentiful.
Since the launch of Apple’s new Retina MacBook Pro, shipping times worldwide for the company’s online store—for the most part—have sat at “3-4 weeks.” Today, shipping times have begun to drop with the U.S., Canadian, and some Asia-Pacific markets now listing the device with an estimated shipping time of “2-3 weeks.” The updated shipping times appear to be landing in many European stores as well.
There have been signs and indications of China’s growing importance to Apple’s bottom line before. In the June quarter the company grew China revenues sixfold, to an astounding $3.8 billion, or nearly eight percent of its total revenue for the quarter. Just three months later, however, the business in China has ballooned to $4.52 billion, an impressive sixteen percent of Apple’s total $28.27 billion revenue for the September quarter. China contributed with twelve percent in the more than $108 billion of fiscal 2011 revenue, or about fifteen billion dollars. Last year revenue from China was just three billion dollars and in 2009 only two percent of Apple’s total revenue.
In other words, one in six dollars of Apple’s quarterly revenue came from China (almost one-in-eight looking at fiscal 2011). The 1.33 billion people country is now Apple’s second-best revenue market. Moreover, revenue for the entire Asia Pacific region grew by 139 percent year over year to $6.53 billion, with CPU units climbing by 61 percent (three percent revenue and eighteen percent CPU units sequential growth). Compared to a 34 percent annual revenue growth in the Americas ($9.64 billion) or a 36 percent growth in Europe ($7.39 billion).
It’s clear now that the Asia Pacific region is Apple’s fastest-growing market, outpacing Europe and the Americas by nearly four times. In fact, Asia Pacific raked in nearly two-thirds of the Americas’ revenue, Apple’s top revenue market. And at four times larger growth, the Asia Pacific region could become Apple’s #1 revenue generator by this time next year.
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CEO Tim Cook said in a conference call with Wall Street analysts that “the China progress has been amazing”, calling it an “enormous opportunity” for Apple. It’s bound to grow even bigger as Apple builds more stores to increase its distribution footprint there. Apple operates five flagship retail stores in China which combined had the most traffic in the quarter. The company has managed to build an impressive thirty retail stores worldwide during the quarter, including massive outlets in Hong Kong and Shanghai, the latter being pictured below.
There were as of this writing more than seven thousand points of sale for the iPhone in Greater China. In total, iPhone has 120,000 points of sale around the world and iPad and iPod are now carried in 40,000 and 50,000 points of sale, respectively. They should open at least 25 new stores in China within the next few years and 40 outlets around the world in the next quarter, with 30 outside the United States.
