Apple's Shanghai store. Image Source: TEFL Search
If you've been following Apple over the last two quarters, you should know the focus has been on its China operations. And that's understandable, as the company has reported two consecutive quarters of 70%-plus year-on-year revenue growth in China, making it Apple's second-largest market, passing the slower-growth European market. For a visual representation of Apple's growth and China's importance to Apple's total revenue haul, see the chart below:
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Source: Apple 10-Q quarterly reports. Revenue figures in millions
As such, investors expect China to continue to boost Apple's top line and are intently focused on the company's results there. Any hiccups with Apple's growth in China could portend bad news for the stock, even if only on a short-term basis.
Recently, the news coming from Chinese smartphone vendor (and key Apple competitor) Xiaomi is decidedly less rosy than in the past. The question is, should Apple investors be concerned or encouraged by this development?
For former high-growth Xiaomi, 34.7 million smartphones is a little disappointingWhen it comes to Apple's competition in China, there's Xiaomi and there's everyone else. For example, in Strategy Analytics' first-quarter market share survey, the data analytics firm found that Xiaomi shipped 14 million phones in China while Apple shipped 13.5 million. As Xiaomi mostly sells to China, any slowdown on its part could mean a greater Chinese slowdown. And that's just what happened when Xiaomi reported its first-half unit sales figure -- 34.7 million smartphones.
Xiaomi CEO Lei Jun attempted to put a positive spin on the results, by discussing the slowing Chinese smartphone market and remarking that "we [Xiaomi] outperformed the market." Yet the growth trajectory has considerably slowed. Last year, the company sold 61 million phones, representing 227% growth over the prior year's number. By contrast, the 34.7 million shipment figure for the first half of 2015 was reported to be only 33% growth over last year's corresponding period.
Going back to Strategy Analytics' first-quarter data, you can see that growth is slowing for both Xiaomi and the Chinese smartphone market as a whole. For example, in the first quarter, China's year-on-year smartphone shipment growth was only 17.3%, down from the 64% growth IDC reported for 2013. For Xiaomi, 2015's first calendar quarter was the second consecutive quarter of sequential unit shipment decreases.
Cause and effect, perhaps?Of course, there's another potential reason for Xiaomi's growth struggles ... and one that's decidedly more bullish for Apple investors. Perhaps Xiaomi's growth is slowing because Chinese consumers are increasingly choosing Apple's iPhone 6 and iPhone 6 Plus over Xiaomi's Mi and Redmi phones. The Strategy Analytics data does hint toward this explanation for Xiaomi's recent struggles more than a slowing overall Chinese market.
For example, after peaking at 17 million shipments in the third quarter of 2014, Xiaomi's shipments fell to 15.7 million in the fourth quarter and bottomed out at 14 million in the aforementioned first quarter of 2015, an 8% and 11% drop, respectively. During these periods, the overall Chinese smartphone market produced a quarter-on-quarter growth rate of 17%, followed by an 11% decrease due to holiday seasonality effects. The key here is that Xiaomi's shipments fell over these two quarters while the overall market registered a gain.
Apple, on the other hand, went from strength to strength in this period by growing from 4.9 million phones sold in China during the third calendar quarter of 2014, to 13.4 million and 13.5 million during the following two quarters.
It appears Apple is beating Xiaomi at the Chinese high-end and stealing market share. And even if the Chinese market is slowing, Apple can still continue its torrid growth pace as long as it can continue to gain market share, as it has been doing. In the end, I feel Xiaomi's struggles are a positive sign for Apple.
The article Do Xiaomis Stumbles Portend Good or Bad News for Apple? originally appeared on Fool.com.
Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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