For Apple in China, Fourth Place Isn't So Bad

By Mark Milian

Photographer: Tomohiro Ohsumi/Bloomberg

Customers try Apple products, including the iPhone, at the company's store in Beijing... Read More

Less than 24 hours after Xiaomi unveiled new products aimed at stealing away more Apple fans in China, the California consumer-electronics giant reported earnings that show it's still strong in the world's largest mobile market.
While Tim Cook led with the company's success throughout BRIC countries as he did on the last earnings call, the chief executive officer also rattled off a series of numbers today suggesting that China remains Apple's favorite growth story. IPhone unit sales grew 48 percent on the mainland last quarter compared with the same period a year ago, Cook said. Mac computers were up 39 percent and even iPads, which were down globally, jumped 51 percent in China.

There's been a lot of talk about an impending crunch for Apple in China as it faces strong local competitors. Sure, the Chinese government may be giving a helping hand to smartphone makers based there. And Apple, which researcher Canalys puts at No. 4 in the country's smartphone sales, has been surpassed by Xiaomi, a Chinese company that's barely four years old. But the numbers — 48 percent sales growth for iPhones in China compared with 13 percent worldwide, for example — tell a different story.

"China honestly was surprising to us — we thought it would be strong, but it well went past what we thought," Cook said on the call. "The unit growth was really off the charts across the board."

Photographer: Tomohiro Ohsumi/Bloomberg

Less than 24 hours after Xiaomi unveiled new products aimed at stealing away more Apple... Read More

Apple will still need to maintain the aura of innovation by coming out with new products. That's especially crucial now that Xiaomi is able to drum up Apple-style buzz for its smartphones and other gadgets. Co-founder Lei Jun hosted a product event in Beijing yesterday that anyone could have mistaken for a Chinese reenactment of an Apple conference. Fans swooned and millions tuned in to watch the live stream as the company showed a new Mi 4 flagship phone and a smart wristband.
Production on new iPhones with bigger screens will begin this month, Bloomberg News reported, and the iWatch should also be coming soon. While an earnings call isn't the place where Apple unveils new products, the numbers released today did give an indication that some big things are nearly here. Walter Piecyk, an analyst at BTIG, notes that research-and-development spending at Apple represented more than 4 percent of revenue in the previous quarter. The last time it was that high was in 2006 — just before Apple debuted the first iPhone.