Apple (NASDAQ:AAPL) cleared the way for the new iPad’s sales in China paying Proview a settlement of $60 million for the right to use the ‘IPAD’ trademark in China. The latest version of the iPad is yet to make an appearance on Chinese shores due to the legal dispute over the trademark but the settlement should lift the ‘ban’ on the new iPad. [1] Going by how important China is for Apple considering the huge growth in sales that the company is seeing from the region, this is good news for Apple and its legion of Chinese fans waiting to get their hands on the latest tablet.
We have a price estimate of $700 for Apple’s stock, about 16% ahead of the current market price.
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Apple’s China story
China is a huge opportunity for Apple and this settlement allows Apple to start selling the highly popular new iPad in its fastest growing market. Revenues from greater China, which includes mainland China, Hong Kong and Taiwan, in the March quarter grew threefold year-over-year and accounted for almost 20% of Apple’s overall revenues. This brought Apple’s FY 2012 first half revenues from the region to $12.4 billion, just shy of the $13.3 billion in revenues Apple managed to generate from the region during the whole of last fiscal year. While most of the revenue growth was due to the iPhone 4S launch, the nascent stage of the tablet market as well as the halo effect of the iPhone makes the iPad a compelling buy among well-to-do Chinese customers.
The new iPad had a tremendous opening in March, selling over 3 million units in the debut weekend itself despite not being available to most of the Chinese (only Hong Kong saw shipments for the new iPad due to the Proview case). Going forward, we see the iPad performing well in the absence of meaningful competitors in the tablet market and the very nascent stage that the market is in. Being available to most of the Chinese will bolster iPad sales in the coming quarters.
Driving Chinese app ecosystem
This, along with the next generation iPhone, should in turn help accelerate the creation of China-centric apps that the iOS6 will support. The new iOS will offer an improved Chinese input system, a better Chinese dictionary, Baidu support as a search engine and enhanced compatibility with Chinese social networking as well as video sharing sites. Increasing the customer base for its iOS devices will help the development of apps that take advantage of the enhanced Chinese functionality in iOS6.
Creating a big enough ecosystem of Chinese apps will help bring more of the growing China’s middle class under Apple’s fold and see an even higher demand for the iDevices. Gartner’s first quarter numbers show that Apple had only 7.5% market share in China compared to Android’s 24.3%. While a big part of that reason is the unavailability of the iPhone on China Mobile (which we believe will be rectified soon), increasing Chinese support in the iOS will also pay its role in increasing Apple’s market share in China.
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Notes:- Apple Pays $60 Million for iPad Trademark in China, PCWorld, July 2nd, 2012 [↩]
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