When it comes to Apple’s financial performance, the most discussed markets tend to be the same:

  1. Americas, where 45% of revenues came from in fiscal third quarter 2020;
  2. Greater China, a market that once accounted for 25% of Apple’s total revenues.

But in the most recent period, one outperforming market flew under the radar – both prior to and even after earnings day. Japan grew sales at the fastest pace among all geographic segments: nearly 22% year over year. Despite representing only 8% of revenues, the region was responsible for 15% of the company’s total sales growth. See chart below.

Everything worked in Japan

Little was mentioned or asked about Japan during the earnings call. CFO Luca Maestri and CEO Tim Cook shared the following pieces of information:

“[In Mac], we grew double digits in each geographic segment and set all-time revenue records in Japan and rest of Asia-Pacific. [And] if you look in the major geographies like the US, we had the top two selling smartphones, [while] in Japan we had the top four.”

Driven by the stay-at-home economy, Macs, iPads and services finished fiscal third quarter strongly across the board. But the iPhone only performed remarkably well in certain markets, including Japan and Australia. This important piece of Apple’s business, the smartphone, seems to have been the key factor separating winners (Japan) and losers (Greater China) in the most recent period.

The fact that Japan has done a formidable job so far at containing the impact of the coronavirus may have played an important role. See chart below, and notice that a COVID-19 death rate of about 8 per million in Japan is remarkably low, especially for a country sitting next to the pandemic’s epicenter. For comparison, the US rate is currently much higher, at 469 deaths per million.

I also believe that Japan benefited from strong demand for the popular iPhone 11 and the new iPhone SE. While the latter could have been a hit among more price-sensitive consumers, lack of traction outside urban centers in China suggests that all iPhone models must have performed better in developed markets. In places like Japan, the iPhone has a competitive advantage over cheaper devices made by Huawei and other vendors, due to its appeal and brand recognition.

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