Gray Market Casts Shadow Over iPhone's Chinese Debut


ref_iphone3g_pairChina’s smartphone market is surging, according to figures from In-Stat released today. But sales of gray-market phones — which aren’t recognized or licensed by Chinese regulators — are rising right alongside legitimate handsets, according to separate numbers from iSuppli. Together, the reports highlight the vast potential for lucrative, high-end devices in the emerging Chinese market — and what may be a key reason behind the iPhone’s tepid launch last week.

Smartphone shipments in China saw a 30 percent increase in 2008 over the previous year, and the high-end handsets accounted for 15.3 percent of overall mobile phone shipments, up from 12 percent in 2007, In-Stat said. But its report followed yesterday’s estimate from iSuppli that gray-market shipments in China will grow to 145 million units this year, or nearly 13 percent of the size of the legitimate mobile phone business, and will increase to 176 million units by 2013.


Source: iSuppli

Those figures are particularly compelling in light of the lackluster debut of the iPhone in China. China Unicom, which launched the device last week, said yesterday it has signed up only 5,000 iPhone subscribers — a figure Piper Jaffray analyst Gene Munster called “disappointing.” Some analysts have cited a proliferation of iPhone knockoffs, which sell for substantially less than the $700 to $1,000 China Unicom is charging, and which were available long before the official Apple (s aapl) gadget came to market.

There are other reasons for the iPhone’s sluggish start, to be sure: The phone’s Wi-Fi was crippled to comply with governmental regulations, and its price is prohibitively high for many consumers. Plus, it’s possible Chinese demand for the iPhone simply isn’t very strong.

But in a nation where 150 million “missing” handsets seem to exist, the surging gray market has surely impacted sales of the iPhone as well. That’s a lesson other manufacturers need to remember as they try to tap the world’s largest mobile market.



Locked-down, restricted, crippled iPhone is so the antithesis of grey market Chinese smartphones… running (gasps!) Symbian, Android, Windows Mobile.

Randy Giusto

JOhnny- Apple’s had this problem in China and other countries, long before iPhones were “officially” sold into those markets. Nokia and others have the same problems with models showing up via the gray market, on retailer shelves.

China has a vibrant gray market with many assembly plants around Shenzhen. iPhones and other smart phones are disassembled (motherboard, other pieces, etc.) by distributors in other parts of the world, (was mainly Middle East distributors but that activity’s moved to all the continents now), then shipped in parts to get around the “electronics duty” as they’re classified as electronic components instead of finished goods. Assemblers put the units together and ship them to retailers in the big cities in China, and sit on shelves next to the real thing, or next to other models of that vendor. It’s very common to see six Motorola models, three legitimately sold in the country, and three not yet announced there but on the shelf thanks to the gray market. It’s a growing industry problem.

I’m not sure why iSuppli thinks the Chinese gray market will level off in 2012, the government is doing nothing about it, it’s hard for vendors to reveal disassemblers and trace the product and parts back to the shelf where it sits as a gray unit in Beijing.

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