Emerging Markets Will Put The Polish On Apple
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While Samsung, working with Google (NASDAQ: GOOG) and Nokia Corporation (NYSE: NOK) in partnership with Microsoft (NASDAQ: MSFT), may lead the world in mobile phone sales, it is Apple (NASDAQ: AAPL) that is developing its iPhone, iPad and other products into status symbols for emerging market consumers around the globe.
Competitor smartphones such as the Galaxy Nexus and Windows Phone do not even approach the cache of owning an iPhone in China. Prices for the Lumia from Nokia have been slashed in half in the United States due to lagging sales, and it looks like the Blackberry 10 from Research-in-Motion (NASDAQ: BBRY) will not even make it to the market until early next year, missing the peak holiday sales period. When the iPhone 5 is introduced in the fall, expect crowd control problems at stores in China and around the world...again, just like there were for the iPhone 4S.
As a percentage of global sales, those in emerging market countries have quadrupled in the last five years for Apple, from 7% to 28%. When Apple reports its earnings on July 24, revenue from China is expected to be on a course to more than double this year to $20 billion. As impressive as this is, it is only the beginning for Apple.
A recent study by Credit Suisse reported another $61 billion of potential sales growth for Apple in emerging markets. Even more bullish for Apple, is that the report assumed no new products from Apple that would captivate the masses...right! Already, the iPhone has a 12% market share in the developing world as opposed to its 26% hold on sales in the United States and other developed countries.
This is likely to increase as the iPhone 5 is reported to be coming out soon with the Blackberry 10 nowhere close to hitting the market and Microsoft doing little to assist Nokia Corporation. Microsoft is counting on its new Windows phone to sell well, but previous performance, as demonstrated by the plunging stock price of Nokia Corporation, does not seem to offer much hope. Even if a Kindle smart phone from Amazon does reach the market soon, it will not be a threat for a long time to Apple, if ever.
As a manifestation of the appeal of Apple products, more than 20 fake "Apple" stores have been busted in China. Where are the fake stores for the competing products from Samsung, Google, Microsoft, Nokia and Research-in-Motion? That is the basic economic principle of "revealed preference" in action by the criminal class catering to its market!
As China and other countries develop 4G networks and iPhones become more affordable, sales will surge. More Apple retail stores in emerging market countries will add to the growth. At present, of its 363 stores worldwide, Apple has 268 stores in the United States. In China, there are five on the mainland and one in Hong Kong. There are none for the hundreds of millions of other consumers around the world who can afford Apple products in India, Brazil, Mexico, Russia and Indonesia, among many other emerging market nations. As a harbinger of what is to come, the Apple stores in China generate the highest traffic and highest revenue of anywhere the Genius Bar is hosted. By contrast, Nokia is shutting down operations in China.
While growth is down in emerging market countries such as China and India, the economies of each are still expanding. Economic growth for China for the second quarter was just reported at 7.6%. In addition, consumption is now at 43% of the Chinese gross domestic product, a huge increase from the the low 30% of just five years ago. Chinese consumers are spending more and they love Apple products, as evinced by the Apple stores in the People's Republic leading in sales for the company.
This upward spike in consumer spending will most likely transpire in other emerging markets around the world as it has for China.
Apple is making this happen. There are plans to open another 25 additional stores in China. Tim Cook, the Chief Executive Officer of Apple, stated flatly that the Chinese market is a "top priority." A recent report from Morgan Stanley projects that the Asia market for Apple could produce from half to nearly all of the earnings growth for Apple in the next two years. “We put enormous energy into China, and the results of that have been absolutely staggering,” previously stated Chief Executive Officer Tim Cook. There is no reason to expect this to be any different as Apple products and stores expand even deeper into China and even wider around the emerging market countries of the globe.
Fool Blogger Jonathan Yates does not own any of the stocks mentioned in this article.The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.