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Apple Inc. (AAPL) Sees Growth In A Surprising Place: Japan

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Apple Inc. (NASDAQ:AAPL)’s addition of Japanese carrier NTT DoCoMo (TYO:9437) is probably going to be even more profitable than most thought it would be. The Wall Street Journal’s Daisuke Wakabayashi and Mayumi Negishi report that over the last couple of years, Japan has become the company’s fastest growing region.

Apple Inc. (AAPL) Sees Growth In A Surprising Place: Japan

Japan’s growth outpaces the U.S., China

According to their report, the Japanese market has grown more quickly for Apple Inc. (NASDAQ:AAPL) than its home market in the U.S. and even the bigger, booming China. Apple also sees its biggest profit margins in Japan, which is also the only one of the company’s five areas where it saw growth in operating profits over the last fiscal year.

Most tech companies have major problems in the Japanese market, so Apple’s success there is a sort of anomaly. The nation’s economy has been struggling for the last 20 years, and its population is getting smaller in number and also aging. In addition, there are plenty of Japanese technology companies which make consumer electronic devices. These companies tend to rule their home country.

Apple sees iPhone, iPad success in Japan

Perhaps the biggest area of success for Apple Inc. (NASDAQ:AAPL) in Japan is the iPhone, which has received support by Japanese mobile carriers through high subsidies and big marketing campaigns. Also the Apple brand has become a sort of status symbol in Japan. BCN analyst Eiji Mori told The Wall Street Journal that when it comes to the Apple brand name, it isn’t about the specs of the device. It’s all about simply owning an iPhone—even if its specs aren’t as good as those of other smartphones.

This year one of the biggest helps for Apple’s iPhone numbers in Japan was the launch of both new handsets on the NTT DoCoMo network, which is Japan’s biggest carrier. This is the first time the carrier started offering the iPhone, and it is marketing the handset heavily and offering deep discounts in an attempt to get more customers to switch from their current carrier.

The iPad is also performing at an extraordinary level in Japan. MM Research told The Wall Street Journal that the iPad took over half of the nation’s tablet market for the fiscal year ending in March.

Apple’s iPhone numbers were already strong in Japan

However, even before the addition of the carrier, MM Research Institute in Tokyo reported that the iPhone had a 37% market share in Japan for the six months ending Sept. 30, making it Japan’s best-selling smartphone. Keep in mind that numbers from Kantar Worldpanel ComTech indicated that Apple Inc. (NASDAQ:AAPL) had a 36% market share in the U.S. during the third quarter.

Now that NTT DoCoMo is offering deep discounts on the iPhone, there’s a sort of iPhone war going on in Japan as competing carriers Softbank Corp. (TYO:9984) and KDDI Corp. (TYO:9433) also offer big discounts on the iPhone. The iPhone 5S is now available at both carriers free.

Where does Apple go from here?

Analysts are estimating that Apple is only going to see continued growth in Japan. Cowen analyst Timothy Arcuri estimates that the company will double its iPhone sales in Japan this year, surging from between five million and six million up to between 11 million and 12 million there this year. And next year, he expects Apple to do it again and sell 20 million iPhones in Japan. The analyst expects Apple to hold a 50% market share in Japan next year.

Those numbers compare to his worldwide growth estimate of a 16% increase in iPhone sales this year and a 10% increase next year.

Why Japan is a healthy market for Apple

Bernstein analyst Toni Sacconaghi suggests that one of the reasons Apple Inc. (NASDAQ:AAPL) is doing so well in Japan is because the market is similar to that of the U.S. The mobile industry is mostly postpaid with multiyear contracts and carrier subsidies on phones. In China and most other markets, however, the mobile industry is mostly prepaid. As a result, consumers pay twice as much for the iPhone 5S and 5C than what they would pay for a phone made in their own country.

Another reason Japan may offer a healthy place for Apple to grow is because Samsung’s presence there is relatively small, ranking fourth behind Sharp (TYO:6753) and Sony Corp. (TYO:6758). In addition, Japan’s population is considerably more wealthy than that of China and other global markets.

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