Apple Needs to Step on the Gas in China: Opinion

NEW YORK (TheStreet) -- Apple (AAPL) CEO Tim Cook is making his second trip to China in the past 10 months.

That's a big change from his old boss Steve Jobs, who never traveled to China. It demonstrates how important China is for Apple in the next five years.

What likely drove Cook's trip this time is a high-level face-to-face meeting with China Mobile's ( CHL) CEO about getting iPhone on its network later this year. It would be a huge win for Apple because China Mobile is the biggest carrier in the world, with over 700 million subscribers.

But China Mobile would also greatly benefit from a deal with Apple. In the most recent quarter, China Unicom ( CHU) posted nearly as many new subscribers as China Mobile, even though it has a much smaller installed base. China Unicom has been a long-time iPhone partner.

Apple has been talking about the importance of China on its earnings call for several years now. So, Tim Cook deserves full credit for recognizing the opportunities here and getting way out in front of them.

In the company's fiscal second quarter last year, Apple did $7.9 billion in revenue from Greater China. This accounted for 20% of overall sales. Just to put that in some perspective, Google ( GOOG) is expected to post revenue in the holiday quarter of $12.4 billion. Facebook ( FB) is expected to do $1.5 billion in revenue in the holiday quarter.

As impressive as this is, I don't think Apple's been as aggressive in China as it should have been. What I can't understand -- and what no one has been able to explain to me -- is why Apple has been so slow to open new stores in China.

It opened its first store in China in 2008 just before the Olympics in Beijing. It's one of the company's best-performing stores in the world. By the middle of last year, Apple had six stores in mainland China.

Back in early 2010, during a store opening in Shanghai, then-Apple retail head Ron Johnson estimated Apple would open 25 stores in China in the next two years. We are still far lower than that target. Why?

Johnson's departure from the company, and the recent firing of his replacement, may have something to do with it. But Apple is a well-oiled machine and once it commits to a goal, it typically delivers on it.

With all the financial success in China over this period, it's surprising that Apple wouldn't have fulfilled on its ambitious goal.

Many other Western companies are going full steam ahead into China. Burberry ( BURBY) had 57 stores in China at the start of 2012 and opened 23 stores on the mainland last year. Then again, Burberry's stock tanked in September last year on a surprising profit warning (although it's made back most of those losses in the warning's aftermath).

I have heard people speculate Apple can't acquire the right locations in China and the right prices in order to proceed. Apple certainly has high standards but I don't think such an exercise with Apple's offshore cash resources would be that difficult.

The answer for Apple's retail presence reticence in China remains unclear.

Meanwhile, in the past two years, Android's software has flourished in China. It has been well-advanced by Samsung, of course, in China. The Note and Galaxy are especially popular among Chinese elites and mainstream. But Android has also been seized upon by all the Chinese handset makers like ZTE and Huawei. Even Alibaba Group and Baidu ( BIDU) have built mobile software on top of Android.

Google doesn't really benefit from this Chinese growth of Android. It gets nothing from the handset makers and Google doesn't even get the mobile information sent back to them. Baidu is used by most for search. Local mapping partners handle Chinese maps. Google doesn't even get geolocation data.

But the fact that Google doesn't benefit from Android's growth in China doesn't make it any better for Apple. Apple is still playing catch-up now in China, where it was seen as being more in a position of strength only earlier in 2012.

No doubt this is partially behind Tuesday's report that Apple is working on a cheaper iPhone for release later this year. Apple likely realizes that it must be able to grab a meaningful share of this exploding mobile market in China and other emerging markets. A $650 device will only take you so far in those markets.

There is still enormous opportunity in China for Apple. Tim Cook seems fully aware of just how big the opportunity is. We will just have to see if the "go slow" approach over the last two years will put Apple at a big disadvantage.

At the time of publication the author had a position in AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at or @ericjackson.

You can contact Eric by emailing him at

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