Apple’s March quarter shows an interesting reversal of certain key December quarter growth patterns: Asian growth outside of China was reignited with real vim, while growth in China is sputtering badly. Apple’s ability to beat both earnings and revenue estimates during the past quarter hinged largely on its big Asia Pacific growth recovery — the annualized revenue growth in Asia excluding China exploded to 26% from just 10% during the December quarter.
This may be a direct result from the aggressive new marketing moves Apple has started making in India. Asia Pacific remains perhaps the most important smartphone growth engine globally, so this matters a lot. At the same time, the Chinese growth rate showed by an astonishing rate from 67% to just 8% in only three months. The regional performance thus remains in flux and extraordinarily difficult to read. One thing is clear: Apple absolutely needs to close the deal with China Mobile, the world’s biggest mobile carrier. It needs strong China Mobile distribution and marketing support now that its sales growth in both China and Americas has slowed down below 10%.
In the December quarter, Apple posted its best annualized revenue growth in Greater China (67%) and Japan (25%). The dismal sales growth in the rest of Asia Pacific (10%) was perhaps the nastiest shocker Santa handed to Apple. Apple also reported tepid revenue increase in the Americas (15%) and Europe (11%), though that is easier to understand due to high market penetration levels. Apple’s problems with non-China regions of Asia are of great importance, since this market includes India, one of the hottest smartphone growth markets in the world. Of course, it was also concerning that Brazil could not jack up growth in Americas higher than 10%.
Apple’s Asia Pacific growth had cooled from 25% during the June quarter to 15% during the September quarter. But for its December quarter, Apple broke down the old “Asia Pacific” grouping into “Greater China” and “Rest of the Asia Pacific”. This is when the markets suddenly realized that while the Chinese growth at the end of 2012 was a terrific 67%, the growth in the rest of Asia was truly anemic at 10%. This marked the point when markets realized Apple had to do something radical to reignite its growth in India, Philippines, Malaysia and Indonesia and that something is likely an introduction of a cheaper new iPhone line. From that moment, worries about Apple’s margins continued snowballing until the share price crashed below $400 a few days before the March earnings report.
Naturally, it makes sense to focus on annualized growth numbers, since that gives us comparisons between quarters that are similar in terms of product cycle impact. The March quarter always shows us how consumers treat an aging iPhone and the June quarter shows us what demand looks like for the old iPhone just before it is replaced. What makes the March quarter particularly interesting is that it gives us a sense of what the natural demand for iPhones is before the steep spring price-cuts kick in. It looks like even before the big spring promotions, Apple was finding its footing in Asia Pacific even as its sales growth in China and the Americas slowed down to mid-single digits.