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Summary:

Apple is expected to ship 11 million million iPhones this quarter, and is banking on China for continued growth, according to an analyst note issued today. Daniel Amir, director and senior research analyst of semiconductors at Lazard Capital Markets, cited China Unicom as sayings it’s sold […]

4058121307_3514e5b517_oApple is expected to ship 11 million million iPhones this quarter, and is banking on China for continued growth, according to an analyst note issued today. Daniel Amir, director and senior research analyst of semiconductors at Lazard Capital Markets, cited China Unicom as sayings it’s sold some 30,000 iPhones in the country since the iconic handset’s launch there on Oct. 30. However, in light of the phone’s high price tag, he isn’t so sanguine about Apple’s prospects in China going forward. From the note:

In October, iPhone shipment to China reached 700K units even though sell-through has been much lower largely due to the high price point. Apple is likely to continue diverting 10% of the iPhone build to the Chinese market, as the opportunity for China could be significant to future growth of the iPhone. … Overall, in our opinion, the high price point remains a barrier for further iPhone adoption and the current run rate is below expectations.

Even if Apple can’t keep growing sales significantly through China, it need only wait until its exclusivity agreements are over to keep its sales on the up and up.

  1. While sales through official channels have been somewhat lackluster, it is likely that there are up to 3.5 million grey market iPhones floating around the Middle Kingdom.

    As to why Apple would have decided to wait this long to do an official launch in such a growing market is a bit of a mystery to me, but I suppose they found the Chinese operators to be onerous to deal with and decided to let the grey market cope with demand for the first couple years.

    So, while some will be happy to hold forth on how the iPhone launch was a failure in China, I think that it has actually already been a success, but, like many other things, the official and the reality on the ground are sometimes different.

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  2. 30,000 on top of the possible 2 million gray-market iPhones isn’t terrible. Maybe the iPhone will just take time to gain traction as it has in Japan. I think it’s too early to write off the iPhone as a failure like India and Russia. No doubt Android-powered handsets will take China by storm due to their lower cost and varied suppliers. That new Dell smartphone looks like an easy winner for China Mobile It seems ideal for the low-salaried Chinese user.

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  3. Why did Apple wait? One, they have to negotiate an agreement with one of the Chinese mobile carriers. Two, those carriers, all quasi-state-owned, were reorganized from 5 down to 3 over the past Summer. Three, those carriers were given official 3G licenses only after the reorganization this Summer. Four, until those licenses were issued, noone knew which carrier would get which 3G technology. For example, China Mobile got China’s homegrown standard of TD-SCDMA, while China Unicom got GSM the one the iPhone uses. Fifth, there was movement afoot that the ban on WIFI in a cellphone was to be lifted.

    For all of these reasons, and plenty of others, the deal to launch the iPhone in China was delayed. All pretty much structural reasons not related to Apple at all. It’d be all well and good to sign a deal with China Mobile, only to find that China Mobile got the license to use a 3G tech incompatible with the iPhone, right?

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  4. The iPhone seems to have done poorly in the BRIC countries. Not sure about Brazil, but at least in India and Russia sales were far below expectations. Sales have been somewhat lukewarm in Japan too. That doesn’t bode well for future growth. The iPhone seems to do well in countries with a western culture/mindset. Perhaps the way the UI is designed appeals particularly to that demographic.

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  5. @Tk
    The meme that the iPhone is not doing well in Japan was proved to be a myth back in July when two iPhone models topped the list of most popular cellphones (not just smartphones) in Japan:

    “the iPhone 3G 8GB, sold by Softbank, easily came in at number one. Second in line was the 16GB iPhone, while the NTT CoCoMo Aquos SH-04A came in at number three.” The iPhone’s popularity has continued at a similar level since then.

    The iPhone hate in Japan story was promulgated by Brian X Chen in a Wired story based on mis-reporting Nobi Hayashi, a journalist in Japan who has frequently written on the smartphone market.

    http://www.appleinsider.com/articles/09/02/28/japanese_hate_for_iphone_all_a_big_mistake.html

    -Mart

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  6. Of course, Apple is going to sit back and ignore poor sales in the BRIC countries. Not. It’s a much more sharply managed company now than in the past, and while I’m not claiming it will definitely succeed, I reckon they are working at their sweet own pace to a well-thought-through strategy.
    It’s obvious they’ll follow the iPod model: progressive price reductions in line with falling component prices, sunken development costs and increasing economies of scale; and timely bifurcation of the product line when it makes sense, to defend against the cheaper copyists.
    The strategy hinges on first establishing and maintaining technological (that’s principally best-of-breed usability, not ‘fastest graphics chip’ or whatever the nerds latest lust is) leadership, and sustaining that through consistently above-sector-average R&D investment, which itself requires and is reinforced by the bigger returns available for top-end devices. If they consequently come to dominate any given market (e.g. the iPod) all well and good, but they are not seeking market share at any price; they’re happy to leave the suicidal race-to-the-bottom price wars to others. Hence, because they are less affluent places, Apple well not end up with the majority of the Chinese or Indian smartphone market: but that won’t trouble them, since they’ll end up with a significant slice, *making the healthiest margins* in those markets.
    Think about it – despite selling way less phones (which they may always do), Apple just overtook Nokia as the most profitable mobile phone vendor.

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  7. [...] prospects in China — despite widespread conviction that it’s too expensive there. As Stacey recently noted, Daniel Amir, director and senior research analyst of semiconductors at Lazard Capital Markets, has [...]

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