China Mobile and the iPhone 4S drive emerging market iPhone sales

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Apr. 25 2014, Published 1:00 p.m. ET

Apple beats Wall Street expectations on iPhone sales

Apple (AAPL) sold about 44 million iPhones in fiscal Q2 2014, according to the earnings that Apple announced on Wednesday. This was an increase of 6.3 million iPhones over last yea, representing growth of 17%. iPhone unit sales were better than Wall Street expectations, and Apple credited the addition of China Mobile (CHL) coupled with a great response to the affordably priced iPhone 4S that led to an all-time quarterly record for iPhone sales in Greater China. As the below chart shows, iPhone sales increased year-over-year but declined quarter-over-quarter, as December saw a boost from the holiday season.

iPhone Sales

Apple achieved record revenue in Greater China

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Apple achieved an all-time revenue record in Greater China, at $9.8 billion in fiscal Q2. Apple claimed that its iPhone sales in Greater China were up 28%, versus the IDC market forecast of 20% growth. This means Apple likely gained market share at the expense of Google’s (GOOG) Android-based smartphones, which have dominated the smartphone emerging markets in the past. Apple also gained from its deal with China Mobile, and during the conference call to announce its Q2 earnings, Apple’s management mentioned, “We look forward to broadening our relationship with China Mobile as they expand points of sale and continue to build out their 4G network.”

The affordable iPhone 4S gave people chance to switch from Android

Apple has faced issues in emerging markets with its iPhone sales in the past due to the affordability factor. Moreover, competitors have started to leverage the growth potential of emerging markets. To leverage this growth, last year, Microsoft (MSFT) announced that it would acquire Nokia’s (NOK) mobile division for $7.2 billion. Nokia is still an important player in emerging markets, so it made sense for Microsoft to buy Nokia, since Microsoft traditionally didn’t have much presence in these markets.

Of late, Apple has changed its strategy towards emerging markets by introducing comparatively cheaper products. According to Apple, 85% of people who bought the iPhone 4S and 69% of people who bought the iPhone 5C were first-time buyers. Plus, 62% of people who bought the 4S and 60% of people who bought the 5C switched from Android. So the introduction of cheaper products seems to have positive effect on Apple.

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