Wednesday, April 8, 2009

Apple iPhone Is Doomed To Fail In China

. Wednesday, April 8, 2009

By stockOzone team

The internet has been rife with rumors that Apple (NASDAQ: AAPL) is bringing its popular phone to China in May. Last month, an official of China Unicom (NYSE: CHU) confirmed on Wednesday that the Beijing- China based company is holding talks with Apple Inc. (NASDAQ: AAPL) on introducing iPhone into China. Apple has been eyeing expansion into China, the world's largest mobile market, for quite some time. According to official statistics, China had 641 million mobile phone users by the end of 2008.

Apple's China plan has caught the attention of few Wall Street analysts. "Our Asia supply chain checks seem to indicate that Apple believes it can achieve an initial penetration rate, least on a sell-in basis, similar to the iPhone launch in the U.S.," Scott Craig, of Bank of America, wrote in a research note to clients. Craig say that should Apple launch iPhone in China, it can quickly take 20 percent of the smartphones in the country, selling roughly 4 million handsets. The analyst estimates that Apple can sell 1.5 million iPhones in China in calendar 2009, assuming a mid-year release, with 4.6 million in calendar 2010, and 5.8 million in 2011. His figures assume a price-point of nearly $500-$600.

However, few facts have been ignored amid excitement around the launch of iPhone in China. Apple has failed to impress smartphone users in India, China's neighbour and the second largest mobile market. The company, which launched iPhone in India last August, has failed to penetrate the Indian mobile market and has failed to make a dent in Finnish cell phone maker Nokia's (NYSE: NOK) market dominace. Similarly in China, Nokia commands 37% off the market share.

Pricing is obviously one of the major issue. At $700, the iPhone looks hugely expensive, considering the fact that smartphone of other companies are available $200 upwards locally. Also, the iPhone sales have been also hurt by fact that in countries like India mobile phone users rely heavily on prepaid rather than contract sales. In India, iPhone is being offered by carriers Vodafone and Bharti Airtel, who unlike their American couterpart, don't subsidize the device.

"China is an important market for Apple, but pricing is crucial as operators don't subsidize mobile phones in this market," said Anshul Gupta, Gartner principal analyst for mobile devices. "Distribution is key to be a successful player in this market."

Moreover, iPhone stands to face stiff competition from Chinese clones like Hi-Phone. The iPhone copies are gaining in popularity in China as they are available without exclusive agreement with wireless carriers. Many Chinese are also using iPhones that have been bought in other countries. According to technology market research firm In-Stat, there are an estimated 400,000 unlocked Apple handsets in the country. So far, Chinese government's hesitant attitude has failed to curb piracy and violation of intellectual property rights.

Thus, iPhone may be selling like hot cakes in US, but in China, success may elude Apple. Though, a lot many American brands like McDonald's, Yum Brands and Coca Cola are doing relatively well in the country, Apple may find the going tough in China.

Disclosure: Author does not own any of the stocks discussed here.





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1 comments:

idannyb said...

1. iPhone in China WILL be subsidized (by China Unicom) for on contract subscribers.
2. There will be two models to choose from (one less expensive)
3. There are already 1,000,000 iPhones in China w an average selling price of $650 (plenty can afford iPhone in China)
4. China Unicom will launch their new WCDMA 3G network in 55 major cities on May 17 in China, 283 cities by year end.
5. China Unicom and Apple will spend big on iPhone promotion
6. Apple will unveil a new China App Store with many just for China Apps
7. There will be special for China apps preloaded on an iPhone for China (e.g. Youku, Tencent QQ)
8. Mobile games are big in China.
9. There are 300 million Chinese online users. China's netizens are on average very young - 66.7 percent of them are younger than 29 years old. They will find a way to own iPhone.
10. India has the lowest calling plans in the world. No room for subsidy. China is a different market. With launch of 3G and new WVAS, there is more room for subsidy for on contract subscribers. In India, 90% are prepaid, in China 70%. There are plenty who will go on contract for iPhone on WCDMA 3G with mobile TV, wave-pay (mobile payments), tethering and video conferencing + and special data-plans for iPhone subscribers.
11. Apple went for a skim strategy in India ... They will launch a penetration strategy in China.

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