Apple Inc. (AAPL) Needs Emerging Markets

Page 1 of 2

Apple Inc. (AAPL)Just like any other global firm, Apple Inc. (NASDAQ:AAPL)‘s reliance on emerging markets is ever increasing. As the U.S. and other developed markets are increasingly hitting higher market penetration rates. The number of smartphone users in the U.S. surpassed 141 million, which represents a market penetration rate of 59%, according to comScore. Apple Inc. (NASDAQ:AAPL)‘s dependence on emerging markets, especially the BRIC countries, is on the rise.

Losing ground in developing markets

In May 2013, Google Inc (NASDAQ:GOOG)‘s Android ranked as the top smartphone platform in the U.S. with 52.4 percent market share, whereas Apple Inc. (NASDAQ:AAPL) ranked second with 39.2 percent market share, followed by Research In Motion Ltd (NASDAQ:BBRY) with 4.8%, according to comScore. And a similar scenario is taking place in Western Europe: Android is very dominant in the region. Google Inc (NASDAQ:GOOG)‘s OS increased its market share to 69% in 1Q13 from 55% a year ago, according to IDC. And Apple’s iOS is losing ground as market share declined to 20% from 25% a year ago.

A cheap iPhone can drive Apple’s numbers

Apple Inc. (NASDAQ:AAPL)‘s recent trade-in programs points to the fact that the company is trying hard to ramp up its unit sales of the newer iPhones and iPads, and even at the expense of accepting a lower unit price for its products. And it also portrays that the company is not hoping to unveil a revolutionary new product, at least in the near-term

Apple is growing its sales revenue, but owing to the intense competition in the handset and tablet markets, the company’s prices and profits have declined. In Q2 FY2013, the gross margins of the company declined to 37.5% from the Q2 FY2012 gross margin of 47.4%. And the company expects gross margins to trickle down further and come in the range of 36%-37% in 3Q-FY13.

The company has been selling a larger portion of older handsets in emerging markets like the iPhone 4 and 4S at lowered prices to lure in first time smartphone buyers, which led to a decrease in iPhone Average Selling Prices which came down roughly $28 in the last quarter. However, if Apple Inc. (NASDAQ:AAPL) can sell higher volumes of its less expensive phones in growing countries, the company’s dollar profits can increase substantially, even at the expense of lowered gross margins.

The China Factor

China has surpassed the U.S. in terms of the no. of smartphones in the market. The population of China is more than 4x of the U.S., but the penetration of smartphones is a lot lower. For Apple, revenues from Greater China make up roughly 19% of its total revenues, a number which is almost certain to grow in the future.

Apple’s growth in China did trickle down to 7.5% as it doesn’t have the largest carrier, China Mobile on its side. Apple’s revenues from the Greater China region stood at $8.2 billion. And Apple intends to double its retail presence in China within two years from current levels as well. The company is making progress, but it needs to step on the gas pedal.

Apple did launch a mix of products with China Unicom as well as China Telecom. In addition, Apple has about 19,000 point-of-sales distribution and is ramping up its online store as well. As China and many other countries in the emerging world have a sizable number of first-time smartphone buyers, Apple is slashing its prices for the older versions of the iPhone in those regions to attract these potential customers.

China still ranks among the top 10 fastest growing Android/iOS markets in the world by growing over 200% on a year-over-year basis, according to Flurry Analytics. However, Samsung leads the pack in the China smartphone marketplace, and four domestic suppliers are also selling more than the iPhone, according to market researcher IDC. Lower priced phones from domestic OEMs have led to Apple Inc. (NASDAQ:AAPL) being the sixth largest player in the largest smartphone market in the world.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!