When I go to China, either with my family or on my own, I do so for two reasons:
First, I go for some rest and recreation. And for me, that’s not seeing the sights. Instead, I prefer to spend my vacation time studying Mandarin.
I skip the tourist spots, stay with a host family that speaks no English, and take classes in a little school where I feel I can really be challenged — by eight-year-old classmates who are, needless to say, invariably more advanced than I am.
Second, I go to China to better understand the dynamics of how its consumer economy impacts the U.S. companies doing business there.
Consider, for example, the line in the picture to the left. It was one of the longest I had ever seen or heard of. It snaked around several city blocks. It required dozens of police to control the crowd.
And fortunately, unlike 2014’s recent New Years’ Eve festivities held 665 miles to the south, in Shanghai, there was no fatal stampede. But the excitement in the air was tangible.
I’m talking about the line outside the Apple store in Beijing for one of its newest releases.
That was a while back. But the frenzied demand for Apple products in China hasn’t slowed down. In fact, it is accelerating — one of the pivotal reasons why, in the most recent quarter, Apple delivered results that blasted past Wall Street expectations.
Sounds easy when you say it. But beating Wall Street’s earnings estimates for Apple is no simple feat.
Remember: Apple is probably the single most closely followed, carefully scrutinized, ruthlessly dissected company in the world. So it takes a truly monumental wave of new, unexpected demand to consistently surpass Wall Street expectations.
By now, you’ve heard the headline news, I’m sure. What I want to add today is one of the single most important numbers that’s likely to continue powering Apple to surpass even some of the more optimistic Wall Street forecasts.
I’m not talking about the fact that Apple reported revenues of $74.6 billion. You probably know that already.
Nor am I talking about how they sold a whopping 74.5 million iPhones — 12 million more than expected. You probably know that too.
The crucial number I want you to focus on is $16.1 billion.
That’s the dollar amount of sales that Apple pulled in from China in the quarter — a whopping 157% increase from the previous quarter and a 70% increase compared to a year earlier.
In other words, it was largely thanks to China that Apple reported its largest profit in its history.
Now pay close attention to this part: This past quarter marked the first time EVER Apple has risen to THE #1 spot in China’s smartphone market.
I can’t emphasize enough how important it is to be #1 in China.
In fact, for years, Apple had failed to take that slot, dropping all the way to sixth place for market share — behind Huawei, Lenovo, Samsung, Xiaomi and Yulong.
Why? Because despite their love for iPhones, a large segment of Chinese — Yuppies and non-Yuppies alike — wanted larger screens.
And until last year, they could only get those from Apple’s competitors.
What made the big difference this year was very simple: As you know, the screens on Apple’s new iPhone 6 — and even more so on the iPhone 6-Plus — are larger.
That turned out to be the number one spark that lit a fire under sales in China. And they took off like a rocket.
It’s also the key to unlocking even bigger sales in the coming quarters: With an estimated 1.2 billion mobile phones in China, Apple has barely scratched the surface of the Chinese smartphone market.
Is the Wall Street crowd aware of this?
To some degree, perhaps.
But I don’t think most analysts understand China like we do. They continually underestimate the mass psychology. Few have immersed themselves in the culture.
Here’s the key: In China, appearance, “face” and fashionable style are critical aspects driving demand for premium brands — not just for smartphones, but also for clothing, liquor, cars, tennis shoes, watches, and more.
This includes my Mandarin teachers, some of which do earn high incomes.
For them and hundreds of millions of consumers in China, “cheap” simply doesn’t cut it — even if cheap comes with relatively good quality!
They insist on the best-quality food. Plus there are certain brands they cannot do without.
That’s the huge advantage Apple has, and that’s why the iPhone still has years of fast sales ahead of it in China.
And don’t forget about other upcoming Apple products to be launched with great branding fanfare for hundreds of millions of anxious Chinese buyers: The new version of the iPad. The Apple Watch. And much more to come.
In my Ultimate Portfolio, which is driven largely by my Weiss Stock Ratings, I own Apple shares, and I have no plans to sell them.
I also keep plenty of money stashed in cash with a watchful eye on threats to the stock market. Those have not gone away and probably never will. But they don’t stop me from making money in the meantime, and I don’t think they should stop you either — regardless of what might be happening in China.
Good luck and God bless!