Apple Inc. (AAPL) In China: The Details

After all, to access the internet with reasonable speeds and enough connectivity would require the use of a smart phone which is something that the average Chinese consumer cannot afford. Apple will be coming into the market offering Apple Inc. (NASDAQ:AAPL) iPhone’s at a price that consumers can afford, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) would be a direct beneficiary.

The importance of Apple to Baidu is unquestionable as Apple’s iOS is an extremely light and fast software operating system. Even with inferior hardware specs, iOS can perform faster than other phones. This means that the iPhone would provide more value to Chinese consumers than any other smart phone manufacturer. It is also likely that Apple Inc. (NASDAQ:AAPL) would have to partner with other app developers in the Chinese market in order to bring the full benefits of the Apple product to fruition. This could be a little challenging, but I see no reason for companies to ignore the Apple eco-system of products.

Baidu should be able to sustain its growth through mobile. The company was able to report 40% growth in its revenue year-over-year, along with net income growth of 8.5% year-over-year. Baidu is a huge beneficiary of economic growth and industrialization which can be clearly illustrated by the GDP chart below.

China’s growth has been decelerating with its most recent GDP growth figure in the 7 to 8% range, according to Bloomberg. Despite the growth deceleration, China remains a compelling investment opportunity for hardware companies like Apple.

Conclusion

The Chinese investment thesis has always been strong, but with China reporting $7.3 trillion in GDP, perhaps the United States is falling behind the red dragon from the east. Nonetheless, Apple has to make an appearance in one of the fastest growing economic zones by providing products that can clear the market at a reasonable volume. Apple has to accept a lower gross margin if it wants to compete in the Chinese space, but by being able to compete, Apple will incrementally grow its net income and revenue.

The article Apple’s China Thesis: Will It Work? originally appeared on Fool.com is written by Alexander Cho.

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