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An iPhone costs about $872 U.S. in China, and yet, they’re flying off the shelves

Most of your iPhone comes from China, but now the story has a new twist: the Chinese are buying up iPhones at new-record rates, despite the fact that a 5S costs about $872 U.S. (5,288 yuan). In the most recently-ended quarter, over 10 million iPhones were sold in China, which accounted for 15.3% of Apple’s total revenue. At this time last year? Chinese sales accounted for 8.8% of Apple’s total revenue. Much like the broader narrative on China’s role in the world, the iPhone market there is expanding rapidly — and this is all before the deal between Apple and China Mobile, which Tim Cook has called ‘a watershed moment.’ China Mobile has about 740 million customers — which is basically twice the population of the entire United States — and they’re beginning to sell iPhones this Friday (they have about 1 million pre-orders). Some believe the new partnership could lead to about 24 million iPhones being sold in China during FY ’14 for Apple; that would be a boon for them. They sold about 150.2 million iPhones world-wide last year; 30 million more would thus be about a 20% increase globally. That’s huge, even for a company like Apple.

There are some issues, though: for one, China bans a ton of stuff that’s in the App Store, so that competitive advantage is gone in the Chinese market. Additionally, you can get much cheaper phones from Xiaomi (“the Apple of China”). Apple, even in the U.S., is sometimes considered an “aspirational” product — i.e. hipsters who aren’t making rent absolutely need to have a 5S — but that could be even truer in China, especially in the rural parts.

Also consider this:

AppleChart

They have a lot of ground to make up in that market. They almost were never in it to begin with — check out this story from Forbes:

The three visits in 13 months that Cook undertook after becoming CEO are part of the reason Apple was able to ink a deal in December with China Mobile. That ended six years of negotiations, according to the Wall Street Journal,which has a recap of the most recent meeting between Cook and China Mobile Chairman Xi Guohua. Those negotiations were started in 2008 by Jobs, who never publicly visited China.

“We’ve gotten to know each other,” Cook said in a rare joint appearance with Xi in Beijing last week to mark the availability of iPhones through China Mobile on Jan. 17. “Today is a beginning, and I think there are lots more things our companies can do together in the future.”

Here’s the thing, as I’ve mentioned in a couple of different posts since I started writing this blog: history is littered with companies that don’t adapt and get fried, or pushed out of their market. The big one is probably Kodak or something like that, but you can tell Apple is pretty hell bent on never being that — since they kinda were that before, when Steve Jobs left the first time. China is a huge market. Any company with a global presence has to play there, even if the governmental policies might be limiting in some ways. Apple is now playing big time there. They have problems and gaps, yes — but this is a good move for them overall and, while there are concerns about profit, this could be the jumping off point of a truly beautiful friendship.

Oh, but one thing — they need to adjust their “one-screen” business model, because the Chinese market wants different screens. Per Computer World and analyst Kevin Restino: 

But with China Mobile now in the fold, the Cupertino, Calif. company will need to grow sales in different ways than signing up new distributors, Restivo said.

In China, that means offering iPhones in more than one screen size and resolution, Restivo contended, referring to the larger-screen smartphones popular in Asia often labeled with the clumsy mash-up of “phablets”

“It would help,” Restivo said, when asked whether Apple needs an iPhone with a larger display than the current 4-in. found on the iPhone 5S and 5C. “The Chinese have a propensity to buy larger devices, and Apple needs to tweak its one-model business model and offer a greater variety.”

Ted Bauer

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