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Think local, act global

Three years ago Apple’s Greater China Q1 sales were $2.22 billion or 9% of total. This year they were $9.29 billion[1] or 20% of total. Over this time frame the growth in China was about 320%. The second fastest growing reporting segment was Japan with growth of 187%. Europe was third with 70% and Americas fourth with 53.5%. Rest of Asia/Pacific had the smallest increase of only 4.1%.

A graph showing both the absolute and relative sales levels for the reporting regions is shown below.

Screen Shot 2014-05-19 at 5-19-11.35.17 AM

As overall sales have increased significantly, the revenues from the Americas and Retail combined (as most stores are in the US)[2] went from 51% in Q1 2011 to  42% in Q1 2014. The 11 point increase in share for China can be thus seen as mostly at the expense of the US. As Americas did not decline more appropriate statement would be that China captured much of the growth of the last three years.

Note that I also included Google’s revenue split[3] in the graph above. This is partly to calibrate Apple’s mix and to understand if the expansion outside the US is mirrored by other companies.

Google, in particular, is largely absent from the Chinese market and the only regional detail we have for their revenues is the US, UK and Other. That leaves an analysis of the dependency of each company on the US market.

Google’s US revenue percentage did drop from 47% to 43% but it’s worth noting that not only is the drop slower than Apple’s, the overall dependency of Google on the US for revenues is higher than Apple’s.

A surprising observation as Apple’s concentration of users, measured as market share for various products, is likely to be higher in the US than Google’s distribution of users.

Put another way, Google is broadly popular world-wide (except for search in China, Korea and Russia) but its customers and hence profitability are highly concentrated.

Notes:
  1. Including China retail, revenues reached “almost $10 billion” []
  2. 60% of all Apple stores are in the US []
  3. Excludes discontinued operations, namely Motorola []
  • Jeff G

    “Three years ago Apple’s Greater China Q1 sales were $2.22 billion or 9% of total. This year they were $9.29 billion[1] or 20% of total. Over this time frame the growth in China was about 320%. The second fastest growing reporting segment was Japan with growth of 187%. Europe was third with 70% and Americas fourth with 53.5%. ”

    Clearly Apple is doomed! (Sarcasm alert)

    • David Stevenson

      No, it is not doomed. It has already failed. EPIC FAIL. Somebody needs to send a memo to Apple. ASAP!

  • stefnagel

    Google’s customers? You mean the advertisers?

  • Tatil_S

    Considering Apple makes money by serving and selling to consumers, the comparison to a successful high end car companies such as BMW could be more interesting. Google’s business model is quite different and MS is heavily dependent on enterprise. Amazon could also provide a good reference point, as it has a global reach and its revenues depend on interaction with consumers directly. Granted, its AWS business muddies waters, but still…

    • obarthelemy

      This. Or at least, track Google not solely by billing (to advertisers), but also by product, ie, users.

  • echotoall

    Defined poverty levels matter for Google. (This is why google’s relevant internet user base may have already peaked.)

  • Walt French

    Just a note on the health of the US ad market that Horace so nicely documents is the driver for Google revenues: Nielsen has a report out today showing that 20% of users account for about half of the time that Americans spend staring at the tube, almost 12 hours a day for these “heavy viewers” (as indeed, they are likely to be, as those 12 hours/day probably aren’t looking at a screen mounted to a treadmill or elliptical machine).

    Anecdotally, a lot of Android usage is for watching videos, in patterns that could be VERY similar demographically to the US — pejoratively, perhaps: if you’re spending a huge amount of time on music videos etc it’s probably because you don’t have a more productive use of your time. Almost certainly, anybody who comes to THIS site isn’t in that category; averages can lie.

    But as Google and Facebook capture a larger share of the ad dollars, it’s likely that new users are increasingly low-income users, ones that advertisers can’t get much return on, and ergo, won’t pay much for ads no matter how relevant they are.

    • http://www.techinch.com/ Matthew

      There’s another thing skewing music video viewership: the of free, legal music streaming services is many parts of the world. In Thailand where I live, YouTube music video playlists are the most popular streaming music source right now. People keep the videos running on a small tablet for background music even when they’re not actively watching the videos—and even small businesses (restaurants and such) use similar setups to play music in their stores from their old XP office computer.

      Incidentally, that bodes even worse for the ads since almost no one is paying attention to embedded ads in those scenarios.

    • raytraced

      hi walt,

      i’ve been thinking about this and it occurs to me that many people just leave one of their local network channels running while performing their household activities throughout the day. e.g. turning it on in the morning while getting ready to cook breakfast and catching up on the news. then leaving it on for most of the day as background noise and catching the novias while taking a break in the afternoon. it is lot like radio in that usage, and makes a lot of sense actually.

  • ptmmac

    The next six months are going to be really interesting for a Apple and Google. Apple is going to introduce their first major increase in iPhone models. The 5s and 5c was merely a manufacturing bottleneck maneuver. There was no way after the disastrous effects of the iPhone 5 metal case introduction, that Apple could use that case for 2/3 rds of their manufacturing. The huge drop in Apples profit margin that fed the drop from 700 to 390, can be tied almost directly to this botched launch. Gross margins were going to drop because Apple’s product launch system is tied to a very slow refresh cadence, and the new model was bound to cost more than the 47% peak in gross margins that preceded the launch of the iPhone 5 model.

    I mention this in part because it has not seen any press coverage. Apple’s moat around their iPhone franchise has seen some major testing by Android and has by and large it has survived in tact. My guess is that the iPhone 5 mess was Jony’s lesson on design limitations that Steve Jobs would have recognized from earlier in his career with the Lisa or Next’s automated factory in California. Apple has survived both this and Samsung’s early move to big screens with its core reputation so intact that no one even really noticed what happened until it has been over for almost 2 years.

    • Tatil_S

      >”There was no way after the disastrous effects of the iPhone 5 metal case introduction”
      What is so disastrous about iP5 case? It is much lighter and probably more durable than glass backside, even though it is not quite as shiny. Considering the volumes of 5s, Apple is indeed using that for almost 2/3 of its manufacturing. You can also think about iPads that have used the same idea since the beginning.

      BTW, I doubt Apple shares fell to 390 ever in the last two years.

      Burcin

      • John Rich

        $388.37 06/28/2013 but I also don’t buy the whole “disastrous metal case” story. Correlation is not causation and all that;-)

      • ptmmac

        You are correct that it was not directly causal. It was the catalyst that allowed some very significant money to be made on Wall Street shorting Apple. The disastrous metal case was simply overreach in finding a stylish case. The case itself required the usual Apple effort to make use of specialized aluminum cutting machines to insure Apple’s style could not be cheaply copied. The causal part is perhaps stronger in causing the drop in gross margin. The first quarter after introduction of the plastic replacement case was the first quarter with a positive surprise in gross margins since the introduction of the metal 5 case in the fall of 2012.

        More importantly for Apple watcher’s, the gross margin surprise was back this in the most recent report on earnings. It will be interesting to see what the margin is for the iPhone 6. Like it or not as the iPhone does so goes Apple, until there is some new 50% margin device with sales in the 10’s of Billions of $ per quarter.

      • Sacto_Joe

        I am in very close agreement with you concerning the impact of the milled aluminum housing on Apple, although I would not characterize it as “disastrous”, but rather deleterious. It did have the positive effect of cementing Apple’s cachet as a premier product manufacturer. I’m also not in agreement that Steve Jobs would have necessarily objected, even considering the lessons he presumably learned during the Lisa and the Next phases of his education.

        Going forward, I would hope that Apple continues to manufacture three sizes of iPhones: The smallest glass-cased version, the mid-sized aluminum-cased version, and a large metal-reinforced plastic-cased version. I believe there is an appeal for each of these versions to different strata of the population.

      • tmay

        Steve’s adoptive father was a machinist, and machining has the cachet of a peak manufacturing process. Steve would have understood that and arguably agreed with it. The fact that computerized machines in large number can produce class leading products for Apple and at the same time be cost effective isn’t obvious. Gross margins are higher now than with the introduction of the 5 due to Apple having matured the process. Apple pioneered mass production machining of consumer products; that is the aluminum industry’s position.

        If anything, it may be that cost for the 5c as a composite of molded plastic, machining and fabricated metal parts was not even as cost effective as machining. It is my opinion that Apple went this direction for both differentiation and to reduce the need for adding yet more computerized machine tool lines.

        Every Apple product save the AppleTV, iPod’s, and iPhone 5c are machined from rolled aluminum plate, bar, forging, casting, or custom extrusion. Certainly Apple has an understanding of the process and the value should be self explanatory.

        disclosure: I machine items of aluminum in low quantities for a living.

      • Sacto_Joe

        I have been a prototype machinist, a CNC programmer, and a CAD/CAM parts designer in my time. The problem is that very small parts like those in the iPhone casing take an inordinate amount of time to machine when compared to larger parts such as those found in the far lower production count computers that Apple makes. Remember that the cutters are much smaller for these smaller pieces, and feeds and speeds are affected by that. Thus, you need a huge number of high quality CNC mills to churn out a sufficient supply.

        In any case, it’s a theory, but that’s all it can ever be. Personally, I think it’s all about trying to guess demand and then building the plant you think you’ll need to match it. The problem is, if you guess wrong and get inundated by demand, it takes a very, very long time to expand your production capacity, since you need to order more mills, which themselves can be production constrained.

      • tmay

        I agree about the large number of CNC machines that Apple has had to provide its manufacturers, but between cutting tool technology advances, constant load programming tools in software, and (relatively) high speed spindles and axes drives, it isn’t really that much of a leap to state that Apple has made the machining paradigm cost effective, though not necessarily at parity with other processes. Micromachining is a fast growing niche especially for medical and optical manufacturing.

        Apple decided that it would make this happen, just as it has again with sapphire production.

        I do agree about the production capacity for CNC machines being a limiting factor, which is why I state that same thought previously.

      • tmay

        You state the the “disastrous metal case” as cause for the drop in gross margins after the iPhone 5 release, then state the the 5c is cause for the increase in these same margins last quarter, yet the evidence shows otherwise.

        More likely, it is that the manufacturing process for the 5 and 5s matured; hence the increase in gross margins. I base this on the wide disparity in sales between the 5c and 5s, i.e., I don’t believe that the 5c contributed all that much to overall profit margins, and most likely lagged the 5s, simply as it was at the time a new product and process.

      • Tatil_S

        Damn, I missed a buying opportunity… :)

  • ptmmac

    The charts above show how much Apple has grown while the “Apple can’t innovate” meme circled the internet a few million times. Apples management has learned from their mistakes. I believe you will see just how well they have learned their lessons this summer. The increasing push for settling the court cases and the huge cash investment in Apple Stock shows how confident they are about the future.