Apple's Future, Like Its Products, Will Be Made in China (Update1)
NEW YORK (TheStreet) -- For all the worries about Apple(AAPL) failing to live up to lofty expectations, the company has one word for the doubters: China.
Apple is generating record revenue growth in mainland China, thanks in large part to a deal with China Telecom(CHA) during the fiscal second quarter, as well as an expanded relationship with China Unicom(CHU) .
|IPhone sales in China had staggering growth in the second quarter.|
CEO Tim Cook said yesterday on Apple's earnings conference call that it was an incredible three months in China, which produced $7.9 billion in revenue, up three-fold. Perhaps that makes perfect sense since Apple's products are made in China (though they're "designed in California," as the company says on its devices).
"So it is mind-boggling that we can do this well," Cook said. The Cupertino, Calif.-based company generated $12.4 billion in revenue from China in the first half of fiscal 2012, compared with $13.3 billion for all of last year.
Many analysts didn't see such a bullish earnings report coming. Apple bulls such as Piper Jaffray's Gene Munster had forecast 33 million iPhones, Hudson Square's Dan Ernst 28 million and Barclays Capital's Ben Reitzes 32.97 million sold during the quarter, well below the 35.1 million actually sold.
Goldman Sachs analyst Bill Shope noted that Apple's growth in other countries outside the U.S. may now be the most important component for Apple.
"International share gains and growth in China, in particular, should be a greater factor for iPhone and iPad growth over time, and it also should be a key driver of upside surprises in the near term. Indeed, when looking at Apple's overall revenue growth in China, it's becoming clear that Apple's emerging market momentum may be the most important component of the revenue story," Shope wrote in a note to clients. He raised his price target to $850 from $750 and rates the shares "conviction-buy."