Apple (AAPL) is Turning Chinese

April 25, 2012 12:52 PM EDT
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As you know, Apple (Nasdaq: AAPL) walloped second-quarter earnings views Tuesday night, posting EPS of $12.30 versus the consensus of $10.06. But were the results really that much of a surprise? No. In fact, the EPS beat was just a little more than its normal 22 percent "beat rate" over the past four quarters, according to data tracked with our EPS Insider.

Apple sold 35.1 million iPhones in the quarter, well ahead of the 30.5 million analysts were expecting. The results were even that much more powerful given iPhone results from U.S. carriers Verizon (NYSE: VZ) and AT&T (NYSE: T) ahead of the report had investors and analyst jittery. A report following the U.S. carrier's iPhone numbers suggested an iPhone miss was potentially in store.

So how did Apple manage to still kill the number? One word - China.

China iPhone sales were five times the level of the year-ago quarter, aided by the launch of the iPhone 4S in China in January and the addition of China Telecom as an iPhone carrier in March.

Apple's revenue in Asia Pacific was $10.153 billion in the second quarter, up 114 percent from last year's $4.743 billion. Revenue in the China made up 26 percent of the total revenue, up from 19 percent last year and 16 percent in first quarter of 2012.

What is breathtaking is Apple's Chinese sales in the quarter neared the U.S's level of sales. While the company doesn't break out U.S. and China -- grouping the U.S. in the "Americas" segment and China in the "Asia Pacific" -- the figures are getting close. Second-quarter sales within the Americas were $13.182 billion, or 33.6 percent of total sales, versus the $10.153 billion, or 26 percent, in the Asia Pacific.

What is telling is while sales in Asia Pacific rocketed 32 percent sequentially, every other geographic area, including retail, had quarter-over-quarter declines.

CEO Tim Cook noted revenue was a record at $7.9 billion in greater China, which is up over three times from last year, bringing first-half revenue for greater China to $12.4 billion. That compares to a full year sales of $13.3 billion last year.

And the opportunity in China looks like it's just starting, not ending. Not only are iPhones selling like hot cakes in China, there is strong demand for the iPad. Right now the company is selling the older iPad 2 model in China and has not shipped the new iPad in mainland China yet, although it is in Hong Kong. The success of the iPhone and iPad in China is having a halo effect on the Mac, which has seen sales rise 60 percent from last year.

"In China, I believe on a macro basis, China has an enormous number of people moving into higher income groups, middle class, if you will," CEO Tim Cook said. "And this is creating a demand for goods, not just Apple’s but other company’s goods as well, and so I think there’s a tremendous opportunity for companies that understand China, and we’re doing everything that we can to understand it and serve the market as good as we can."

The truth is Apple is turning Chinese and investors should be loving it.

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