"China is currently our second largest market. I believe it will become our first," Apple (NASDAQ: AAPL) CEO Tim Cook said back in 2013 . "I believe strongly that it will." Cook reiterated that sentiment in late 2015, saying, "Our view is that China will be Apple's top market in the world -- and not just for sales." The chief executive was referring to the rapidly growing developer community in China, which ties into its broader ecosystem.
For a few years, the trajectories of Apple's U.S. business and China business supported this prediction. Nowadays, it's hard to see that prediction ever coming true.
Image source: Apple.
Slipping further behind
In the two years following Cook's initial prediction, Greater China revenue put up some massive gains and was indeed rapidly catching up to the size of Apple's domestic sales. Here's the company's revenue in both markets over time, presented on a trailing-12-month (TTM) basis to smooth out seasonality.
Data source: SEC filings. Chart by author. Calendar quarters shown.
In fact, Q4 2015 (shortly after Cook reaffirmed the prediction) turned out to be the closest Greater China TTM revenue has gotten to catching up with U.S. TTM revenue, lagging by just over $20 billion. However, in the years since, Greater China revenue has pulled back in a big way while sales in the U.S. continue to grow.
Currently, Greater China TTM revenue is about $52 billion behind U.S. TTM revenue. China continues to slip relative to the U.S., with the difference growing larger every quarter.
Data source: SEC filings and author's calculations. Chart by author. Calendar quarters shown.
Can Apple bounce back in China?
On the earnings call last month, Cook noted that Apple now has over 2.5 million developers in China, which would represent more than 10% of the company's total developer base. Apple said at WWDC last summer that it had hit over 20 million registered developers. What's less clear is how many iPhones Apple is selling or how large its installed base in China is. The latest third-party estimates from IDC suggest that iPhone unit sales in China fell 20% in the fourth quarter.
Of course, there's no way that Cook could have foreseen some of the company's recent challenges in China, most notably the ongoing trade war between the U.S. and China that has hurt both economies. The quality of handsets made by local Chinese rivals has also improved considerably in recent years, intensifying competition.
That's not to say that Apple can't bounce back in China in the long term. But in the short term, there doesn't seem to be any end in sight to the Mac maker's China woes.
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