Why Asia Might Be Apple’s Most Important Market

Apple’s (AAPL ) second-quarter financial results impressed many investors, with the iPhone giant posting strong top and bottom line growth. Apple also grabbed attention for its new $100 billion stock buyback announcement. But what might have gone unnoticed is how Apple performed in Asia. 

Apple reported quarterly earnings that topped our consensus estimates, while its revenues climbed 16% to reach $61.1 billion. Meanwhile, Apple reported total iPhone unit sales of 52.22 million and second quarter iPhone revenues of $38.03 billion, both of which fell short of our estimates (also read: Does Apple Really Have An iPhone Problem?).

CEO Tim Cook noted that strong iPhone X demand was a major reason for Apple’s first quarter success. He also pointed directly to two key Asian markets. “We also grew revenue in all of our geographic segments, with over 20% growth in Greater China and Japan,” Cook said in a company statement.

With that said, let’s take a look at Apple’s growth in key Asian regions to see if the company is trending in the right direction.

Asian Markets 

Last quarter, Apple saw its sales in Greater China reach $17.96 billion, accounting for over 20% of Apple’s total sales. This also marked 11% year-over-year growth in the world’s second-largest economy. On top of that, Apple saw an 83% jump in sales from the fourth quarter of 2017. This obviously included the holiday shopping period and the first full quarter the pricey iPhone X was on sale.

Apple also saw an uptick in Japanese revenues in Q1, as well as the “Rest of Asia Pacific.” These three Asian regions accounted for a total of $32.05 billion in Q1 sales, or 36.29% of the company’s total quarterly revenues.

In the second quarter, overall sales in Greater China hit $13.02 billion, which marked a 21% year-over-year surge. Revenues in Japan jumped by 22% to reach $5.47 billion. Meanwhile, the rest of the Asia Pacific region rose just 4% to $3.96 billion.

Overall, Apple reported a total of $22.45 billion worth of revenue in these key Asian markets. This accounted for roughly 36.7% of Apple’s quarterly revenues—almost directly in line with Q1.

For some much need perspective, revenues in the Americas popped by 17% to hit $24.84 billion, while European revenues climbed by 9% to reach $13.85 billion. Investors should note that Asian markets are almost as valuable to Apple’s top line growth as the Americas. 

Looking Ahead

Apple clearly has a large presence in Asia, but the iPhone’s high price tag currently prevents the company from expanding its reach. The iPhone X is pricey in the U.S., but many wireless carriers, including AT&T (T ) and Verizon (VZ ) , subsidize the cost via particular plans. In many emerging Asian markets, this is not always the case.

Customers all over Asia often opt for lower-priced smartphones made by Chinese companies, including Xiaomi Corp.—sometimes called “the Apple of China.” What’s worse is that by many accounts, these smartphones offer comparable features to the iPhone. And for all the talk about Apple’s growth in Asia, the company’s market share is still pretty insignificant in many countries.

Investors should pay close attention to Apple’s pricing and the development of any lower-priced iPhone options going forward, as these moves could prove vital to securing a larger chunk of key Asian markets in an effort to expand Apple’s top and bottom lines.

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