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Apple Earnings Prove It No Longer Needs China to Succeed

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Shares of Apple (AAPL - Free Report) opened more than 5% higher on Wednesday after the company’s Q3 earnings and revenue figures cruised past expectations. As we continue to dig into the report, one of the most compelling storylines from Apple’s most recent quarter was its performance in China.

Interestingly, Apple reported that revenues in the Greater China region totaled just $8 billion in the third quarter, which marks a 10% slump from the year-ago quarter. These results also came in well below our consensus estimate of $9.36 billion, a total that would have reflected growth of nearly 6%.

While that wasn’t enough to bring down total iPhone sales or significantly damage Apple’s bottom line, it does underscore the challenges the company has faced in the area over the past several years (also read: Apple Stock Gains as Q3 Earnings and Revenue Top Estimates).

Several years ago, China’s booming middle class was targeted as the next key market for consumer electronics. Industry giants like Apple were able to quickly swoop in, and growth in the country was a major overall growth driver for the brand.

However, it didn’t take long for the country’s domestic competitors to catch up. Chinese phone makers like Oppo and Vivo have been growing at an incredible rate, and they’ve snatched up market share by offering similar devices at much lower prices.

For example, Oppo recorded 122% growth in smartphone sales in China last year, doubling its market share to 16.8%. Apple’s market share in China was down to about 10% by the end of 2016.

On top of increased competition, the Chinese government has displayed some favoritism towards domestic manufacturers, and Apple has faced an increasingly challenging regulatory environment recently.

Nevertheless, Apple just posted solid top and bottom line beats and issued fourth-quarter guidance that was above consensus estimates. Why does this matter? Because it proves Apple can succeed without growth in China.

One of the ways Apple is able to pull this off is by focusing on other upstart growth markets. In fact, it looks like Apple’s attention has turned to the southwest—towards the booming smartphone market in India.

During Tuesday’s investor conference call, Apple CEO Tim Cook underlined his company’s investments in India, mentioning that Apple recently launched an app accelerator center and started production of the iPhone SE in the country.

Apple didn’t break down its revenues in India specifically, but sales in its “Rest of Asia Pacific” region were up about 15% year-over-year to $2.72 billion. “I’m very, very bullish and very, very optimistic about India,” Cook said.

As we look ahead, success in key markets like India will be integral to Apple’s success. China was once one of those key growth markets, but it looks like that ship has sailed.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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