Here’s Why Apple Is Big in Japan

Source: Apple.com

Apple Inc. (NASDAQ:AAPL), it seems, is taking over Japan’s smartphone market. According to The Wall Street Journal, Japan has become the Cupertino, California-based company’s fastest-growing region and the only one where operating profit actually grew in the last fiscal year. Apple’s iPhone took a 37 percent share of the country’s total smartphone market by the end of September, according to Tokyo’s MM Research Institute via the Wall Street Journal.

So why is Apple such a hit in Japan? One reason may be the similarities between the Japanese and U.S. smartphone markets. Like the U.S., Japan’s smartphone market is driven by generous subsidies from carriers. This levels the playing field for Apple, since the iPhone is typically more expensive than the other smartphones on the market.

Another reason may be Japanese consumers’ particular fascination with premium brands. As noted by BCN analyst Eiji Mori via The Wall Street Journal: “Apple’s brand is just overwhelming here. It’s not about specifications. It’s not about rationale. It’s about owning an iPhone.” Japan’s wealthy consumers are also willing to pay a premium price for Apple’s iPhone. As reported by the Journal, Apple’s operating profit margins in Japan surpass 50 percent, in contrast with the 35 percent margin that Apple gets in most other markets.

Apple may also be thriving in Japan due to the limited presence of one of its major smartphone rivals: Samsung Electronics (SSNLF.PK) is relatively minor player in Japan, where some consumers have a bias against Korea-based companies.

Apple is also reaping the benefits of a competitive iPhone pricing war between the country’s three biggest carriers. Apple announced a distribution deal with Japan’s largest carrier, NTT DoCoMo (NYSE:DCM), 10 days before the release of the iPhone 5S and iPhone 5C. However — as noted by Apple CEO Tim Cook in the NTT DoCoMo distribution deal announcement — Apple was already “the top selling smartphone in the country” through its deals with Japan’s two other major carriers, SoftBank and KDDI. SoftBank began offering the iPhone in 2008 and KDDI signed a distribution deal with Apple in 2011.

The addition of NTT DoCoMo has sparked an iPhone discount battle between Japan’s major carriers and helped further fuel Apple’s astonishing growth. According to Cowen & Co. managing director Timothy Arcuri, via The Wall Street Journal, Apple’s iPhone will likely account for half of Japan’s total smartphone market by next year. For all these reasons, Japan will likely continue to be an important catalyst for Apple’s growth in fiscal 2014.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

Don’t Miss: Samsung Faces Sanctions Over Apple Doc Leak.

More from The Cheat Sheet