Apple Inc. (AAPL): This Is The Company’s Next Big Opportunity

Page 1 of 2

The debate over whether Apple Inc. (NASDAQ:AAPL) is growing or slowing could go on all day.

On one side of the aisle are the enthusiasts who will point to Apple Inc. (NASDAQ:AAPL)’s market-leading innovative track record, its impressive $137 billion in cash, and the fact that it sold a record 47.8 million iPhones and 22.9 million iPads in its most recent quarter. Further, Apple Inc. (NASDAQ:AAPL)’s U.S. market share for the iPhone improved 3.9% from November 2012 through February 2013 to 38.9%, as Google Inc (NASDAQ:GOOG)‘s Android operating system sank 2% to 51.7%, according to comScore.

Source: comScore as of February 2013. Market share rounded to nearest whole figure.

The other side of the coin paints the picture of large numbers, which historically tells us that Apple Inc. (NASDAQ:AAPL)’s previously exponential growth rate is bound to slow. Evidence includes Apple Inc. (NASDAQ:AAPL)’s pared-back LCD orders from manufacturers such as Sharp in January because of tempered demand for the iPhone 5; ever-growing smartphone competition from the likes of Samsung, which grew its global market share from 19% in 2011 to 39.6% in 2012, according to research firm IDC; and its subservient position in the OS market to Google Inc (NASDAQ:GOOG)’s Android on a global basis.

Regardless of which side you fall on, one thing is quite clear: Growth prospects for Apple Inc. (NASDAQ:AAPL) are narrowing both in Europe, because of austerity measures enacted throughout the region, and in the U.S., where competition among cellular devices and operating systems is fierce.

That’s why Apple must look elsewhere for its next big opportunity. We’ve already seen stellar results from overseas markets, with Apple delivering 67% revenue growth in China in its most recent quarter. That’s largely why I think Russia offers Apple its next great frontier of growth.

The answer to Apple’s woes
If you think about it, Russia offers the perfect groundwork for Apple to build its presence. As of the third quarter last year, Apple’s smartphone market share in Russia was just 7.2%, according to estimates by Russia’s largest carrier, Mobile TeleSystems OJSC (ADR) (NYSE:MBT). That’s up nicely from the 5.7% in the year-ago period, but it’s still a long way from approaching Samsung and Nokia Corporation (ADR) (NYSE:NOK), which claimed 44% and 17.8% of Russian cell-phone market share in the corresponding period, according to my Foolish colleague Evan Niu.

The two primary factors that have held Apple back in Russia are a lack of a physical presence and the slow growth of Russia’s own wireless infrastructure.

Building a franchise
In the U.S., it’s easy to understand why Apple grows so rapidly — it has 250 physical stores. However, Apple has been rapidly expanding its physical presence in international markets, ending fiscal 2012 with 140 international stores spread throughout 12 countries.

Source: Brandon Daniel.

What’s more, average revenue per store (across its entire network) increased 19% over the previous year, gross margins expanded 340 basis points, and, according to, its stores catered to 372 million visitors. This is why launching an iTunes store in Russia, as well as 55 additional countries in December, was an important stepping stone toward establishing its presence beyond just the United States.

Page 1 of 2