China is Apple's land of iPhone opportunity# Stock
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Apple is accustomed to being the smartphone king, but in China, the iPhone i
s barely even an also-ran.
The iPhone is currently in seventh place in China, according to research fir
m Canalys. That means Apple is missing out on a huge opportunity: The Chines
e smartphone market is exploding, with sales more than doubling over the pas
t year. One-third of all smartphones are now sold in China -- more than the
United States, India, Japan and the United Kingdom combined.
Apple (AAPL, Fortune 500) is No. 1 or No. 2 in almost all other countries wh
ere it sells the iPhone, but most of those markets are far more saturated. S
martphone sales in the United States, for instance, grew by 36% last year --
still a healthy clip, but far slower than China.
"The smartphone industry is maturing; growth is shifting from premium to mas
s market, where ... Apple lacks presence," Indigo Equity Research Nick Lande
ll-Mills wrote in a note to clients last month.
Next month, Apple may finally unveil its solution to the China problem: Appl
e is expected to announce the long-rumored low-cost iPhone, dubbed the "iPho
ne 5C," on Sept. 10.
On a conference call with Wall Street analysts last month, Apple CEO Tim Coo
k didn't acknowledge rumors that Apple is working on the iPhone 5C, but he d
id say the company is working "very cautiously with what we want to do with
great quality."
Related story: Apple's China problem
That high-quality approach worked in the U.S. and the rest of the world. In
China, by comparison, price is a big issue. Phones aren't often subsidized b
y wireless carriers in China like they are in the United States, and that pu
ts a top-shelf device like the iPhone outside the price range of many Chines
e consumers.
"Apple offers very high-end, high-priced devices," said BGC Partners analyst
Colin Gillis. "But in China, Apple needs to address the marketplace. The ob
vious step one is creating a product that people can buy. Apple hasn't done
that yet."
And so Chinese consumers have turned to cheaper phones from Samsung, as well
as local brands such as Lenovo, Yulong and ZTE. Those companies have been a
ble to introduce reasonably priced phones to China, get a strong foothold in
the market, and continue to drop prices, Gillis said.
He suspects Apple's "cheap" iPhone will still come in at about $400, and he
thinks that won't be low enough to set the Chinese market ablaze.
"You have to wonder: If Apple is coming in at $400 when everyone else is hea
ding down to $200, what will happen?" Gillis asked.
Even if Apple does release a phone that's cheap enough to attract Chinese co
nsumers, the company still faces a giant roadblock: Apple hasn't been able t
o secure a deal with the country's largest carrier, China Mobile (CHL). The
wireless giant accounts for 65% of the nation's mobile subscribers.
Apple and China Mobile have been squabbling over carrier subsidies, and a ch
eaper iPhone would make China Mobile more likely to sign on, according to an
alysis firm Trefis.
"The potential for Apple to ride the boom is huge," Trefis concluded. "In or
der to do so, however, Apple needs a cheaper iPhone." To top of page
s barely even an also-ran.
The iPhone is currently in seventh place in China, according to research fir
m Canalys. That means Apple is missing out on a huge opportunity: The Chines
e smartphone market is exploding, with sales more than doubling over the pas
t year. One-third of all smartphones are now sold in China -- more than the
United States, India, Japan and the United Kingdom combined.
Apple (AAPL, Fortune 500) is No. 1 or No. 2 in almost all other countries wh
ere it sells the iPhone, but most of those markets are far more saturated. S
martphone sales in the United States, for instance, grew by 36% last year --
still a healthy clip, but far slower than China.
"The smartphone industry is maturing; growth is shifting from premium to mas
s market, where ... Apple lacks presence," Indigo Equity Research Nick Lande
ll-Mills wrote in a note to clients last month.
Next month, Apple may finally unveil its solution to the China problem: Appl
e is expected to announce the long-rumored low-cost iPhone, dubbed the "iPho
ne 5C," on Sept. 10.
On a conference call with Wall Street analysts last month, Apple CEO Tim Coo
k didn't acknowledge rumors that Apple is working on the iPhone 5C, but he d
id say the company is working "very cautiously with what we want to do with
great quality."
Related story: Apple's China problem
That high-quality approach worked in the U.S. and the rest of the world. In
China, by comparison, price is a big issue. Phones aren't often subsidized b
y wireless carriers in China like they are in the United States, and that pu
ts a top-shelf device like the iPhone outside the price range of many Chines
e consumers.
"Apple offers very high-end, high-priced devices," said BGC Partners analyst
Colin Gillis. "But in China, Apple needs to address the marketplace. The ob
vious step one is creating a product that people can buy. Apple hasn't done
that yet."
And so Chinese consumers have turned to cheaper phones from Samsung, as well
as local brands such as Lenovo, Yulong and ZTE. Those companies have been a
ble to introduce reasonably priced phones to China, get a strong foothold in
the market, and continue to drop prices, Gillis said.
He suspects Apple's "cheap" iPhone will still come in at about $400, and he
thinks that won't be low enough to set the Chinese market ablaze.
"You have to wonder: If Apple is coming in at $400 when everyone else is hea
ding down to $200, what will happen?" Gillis asked.
Even if Apple does release a phone that's cheap enough to attract Chinese co
nsumers, the company still faces a giant roadblock: Apple hasn't been able t
o secure a deal with the country's largest carrier, China Mobile (CHL). The
wireless giant accounts for 65% of the nation's mobile subscribers.
Apple and China Mobile have been squabbling over carrier subsidies, and a ch
eaper iPhone would make China Mobile more likely to sign on, according to an
alysis firm Trefis.
"The potential for Apple to ride the boom is huge," Trefis concluded. "In or
der to do so, however, Apple needs a cheaper iPhone." To top of page