Earnings Results: The surprise in Apple earnings: Big growth in China


Even Apple Inc.’s biggest supporters had been predicting doom and gloom in China heading into the company’s earnings report Tuesday, but the iPhone maker had a surprise for everyone.

Apple AAPL, +2.32%  posted 21% revenue growth in the Greater China region for the fiscal second quarter, its best year-over-year increase in 10 quarters. The company didn’t break out iPhone sales by region, but Apple posted a blowout quarter in terms of China revenue and a passable quarter in terms of iPhone revenue, and Chief Executive Tim Cook suggested that the iPhone had a banner quarter in the world’s most populous country.

“The iPhone obviously had to do extremely well to get a 21% number,” he said on the company’s earnings call. Cook also said that the iPhone X was the top-selling phone in China, presumably citing third-party statistics.

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Separately, research firm Strategy Analytics issued a release Tuesday night that said Apple grew its global market share during the quarter and that the “ultra-premium iPhone X is proving relatively popular in some markets like China.”

Before Apple’s earnings report, several bullish analysts debated whether Apple’s supposed rebound in China — a few recent quarters of growth after a string of declines — was for real. UBS analyst Steven Milunovich had been predicting near-flat growth in China for the fiscal year, while Morgan Stanley’s Katy Huberty warned of “continued weakness in China data.”

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Huberty did flag China’s strong App Store performance, which was likely a key reason behind the company’s impressive results in the region. Cook said that one of the things that had “huge growth rates there” was the services business, a segment that includes the App Store, Apple Music and Apple Care revenue. Overall, the services unit beat estimates by a wide margin that Cook said spanned geographies, though he did note Apple Pay strength in China and other Asian countries.

In her earnings preview, Huberty wrote that the App Store generated $1 billion in revenue in China for the first time during the March quarter.

The other big driver of growth was Apple’s “other revenue” line item, which includes the Apple Watch as well as AirPods earphones. Cook once again declined to give specifics when he said that global Apple Watch sales hit a new March-quarter record, but he did flag the introduction of carrier support for cellular-enabled Apple Watch 3 devices in mainland China, Hong Kong and Thailand during the period.

Apple shares were up 3.5% in after-hours trading Tuesday following the report’s release. The stock is up 15% over the past 12 months, as the Dow Jones Industrial Average DJIA, -0.27% , which counts Apple is a component, has gained 15%.