Apple sees emerging markets rescuing it from slowdown in US, China

After two consecutive quarterly revenue declines — and a third one on the way — Apple Inc. has a message for investors: Emerging markets are ready to take off.

Chief Executive Officer Tim Cook made that pitch during the company’s earnings call last week, when he pointed to record-setting sales in many countries around the world. Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the United Arab Emirates all had best-ever quarterly sales in the most recent period — even while overall revenue declined. And Malaysia, Brazil and India had their best-ever March quarter.

It’s no shock that Cook is touting inroads in emerging markets. He recently toured India, where Apple just opened its first retail outlets, and has talked up the country’s potential as the next China. But the topic was a bigger source of discussion Thursday than might be expected. India alone was mentioned about 20 times on the call.

An iPhone resurgence in the quarter was fueled by emerging markets across South Asia, the Middle East and Latin America, Chief Financial Officer Luca Maestri said. They helped push sales of the device to its highest-ever total in a March quarter.

There was less good news about Apple’s more established markets. Sales fell in the Americas, Japan and the all-important China, contributing to an overall decline of about 3%.

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“Where our results were really stellar during this quarter was really in the emerging markets, and we couldn’t be prouder of the results that we had there,” Cook said.Though Apple’s results were positively received last week, some analysts have fretted that the company may be doomed to years of sluggish growth. The message from Apple is that there’s still plenty of room to expand in these newer markets and add customers to its platform.

Maestri summed up that stance in response to an analyst question:

In places where our market share is low, we tend to add a lot of switchers — people that are new to the Apple ecosystem. That increases the install base. And, over the longer term, it obviously improves our ability to monetize on services as well.

Cook expanded on that thought, diving a little bit deeper into India. “What I do see in India is a lot of people entering the middle class, and I’m hopeful that we can convince some number of them to buy an iPhone and we’ll see how that works out,” he said. “I really feel that India is at a tipping point.”

His comment about the middle class suggests that Apple is waiting for India to come to it, rather than the other way around. That means the company won’t necessarily make super-cheap phones just to penetrate the market. And indeed, its two new locations in India are upscale stores. They have the same fit and finish — and the same premium-priced products and services — as stores in other countries. In fact, the price of an iPhone 14 Pro in India, converted into dollars, is higher than in the US.

Still, there’s an argument to be made that Apple should bring down the price of its products to broaden their appeal — and further accelerate its growth in emerging markets. For now, Apple has avoided that approach, believing it could hurt the brand and its profit margins.

But selling cheaper devices could get more people to buy Apple services, one of the company’s few categories that grew last quarter. And Maestri acknowledged that pushing for more service revenue is a key part of the strategy in newer markets.

While Apple may never launch a new sub-$300 iPhone, it could market its older SE models as a budget-minded alternative. The company had a chance to do just that when it rolled out a new iPhone SE last year. At the time, I suggested that Apple cut the price of the previous version to $199. The company didn’t take my advice, but it will have another chance to take such a step when the next SE arrives. If Apple really thinks emerging markets are the future, it might just have to.