Li Wenhua, a 35-year-old school teacher in Beijing, left work early last week to buy an iPhone -- even though she didn't need it for work and wasn't planning to use many of its features.
"A lot of people in my office use it and said I should get one, so I did," Li said as she exited Apple (AAPL) Inc.'s Joy City Mall store. "I chose it just because it's beautiful. I like the style."
The must-have sentiment helps explain why China made up 20 percent of Apple's sales and fueled a 94 percent profit surge last quarter. Hundreds of miles from Foxconn Technology Group plants where iPhones are built, shoppers in Beijing, Shanghai and other cities are flocking to the devices and making their country a centerpiece of the company's growth strategy. Like Starbucks Corp. (SBUX) and Yum! Brands Inc., Apple is benefiting from rising wages that give Chinese citizens more disposable income.
"China has an enormous number of people moving into higher income groups," Apple Chief Executive Officer Tim Cook said this week on a conference call with analysts. "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."
Apple sold 35.1 million iPhones in the fiscal second quarter, an 88 percent increase from a year earlier, and higher than the average estimate of analysts surveyed by Bloomberg. That came after the January release of the most recent version of the iPhone in China and 21 other countries.
'Zero to $13 Billion'
China accounted for $7.9 billion of Apple's $39.2 billion in sales in the period that ended March 31. In the first six months of this fiscal year, Apple's sales reached $12.4 billion in China, almost matching $13.3 billion, the total for all of last year. Before the iPhone's debut there in 2009, the company had less than $1 billion in annual sales in China.
"I don't know of any other company that has driven its sales from virtually zero to $13 billion in a few years," said Donald Straszheim, a senior managing director who heads China research at ISI Group LLC in Los Angeles. "There's a growing appetite for Apple products."
David Fuller's view I think there are three important messages here:
1) The extraordinary appeal of Apple's current products in an intensely competitive industry is well known and needs no further explanation.
2) The widely feared (hoped for?) hard landing predicted for China - never a Fullermoney view - is obviously not occurring. China accounted for 20 percent of Apple's 1Q 2012 sales, demonstrating the growing consumer strength of China's burgeoning middle class.
3) The growth potential for global Autonomies - Fullermoney's term for sector-leading multinational companies which are expanding and profiting from their global reach.
A recent statistic that I recall for Apple's iPhone sales penetration in China is 5 percent, which shows the potential for further growth and not for just this tech leader. There is an old investment adage which you may have heard: 'There is always a bull market somewhere.' To paraphrase this for the Autonomies: There is always a growth market somewhere. That is their strength and long-term potential, given good management, services and products. The Autonomies are recession-resistant, and for this reason they have been Fullermoney's favourite investment theme in recent years (although they have only been referred to as Autonomies for approximately a year).
We also know that no share rises in a straight line for very long. Therefore we need to monitor the Autonomies on price charts, just like any other investments. In the finest Darwinian fashion, individual Autonomies will have fluctuating fortunes, as I have mentioned and illustrated before, whether due to management concerns, competition, or whatever. All developed countries have been seedbeds for at least a few Autonomies but more have emerged from the USA, so far.