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Apple Underwhelms in China, Too

Robert Clark
News Analysis
Robert Clark
9/12/2013
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It's hard to imagine, but this week's iPhone launch has left the Chinese even less enthused than the rest of the world.

Not only are many unimpressed at the price, but they were also fuming at the lame Beijing launch. Although it was the first such event in China, Apple Inc. (Nasdaq: AAPL) could think of nothing more enthralling than replaying a video of the Cupertino event several hours earlier, as The South China Morning Post pointed out.

At 4,488 Yuan Renminbi (US$734) for the 16GB version, the iPhone might be within reach of well-heeled consumers in Beijing and Shanghai but is unlikely to win over punters in so-called third-tier cities and beyond, who have never owned a smartphone.

This is underscored in the results of an online survey by research firm iiMedia (in Chinese), which found that just 5.2 percent of those polled were interested in the iPhone 5C, while only 4.7 percent said they considered it affordable.

In another online poll (again in Chinese, naturally), more than 80 percent said the price was too high.

China is the world's biggest smartphone market, according to research firm Canalys, with 88 million devices shipped in the second quarter of 2013, more than twice as many as in the US.

But Apple's market share in China fell to just 5 percent during that three-month period, putting it in seventh place behind Samsung Corp. and local brands such as Lenovo Group Ltd. (Hong Kong: 992) and Huawei Technologies Co. Ltd. .

Apart from the rising competition from Asian smartphone brands, China has troubled Apple because of its inability to strike a deal with China Mobile Ltd. (NYSE: CHL), which, with 745 million customers, accounts for more than 60 percent of the country's mobile user base.

That Apple has no deal with such a major player has largely been attributed to the device-maker's unwillingness to make phones for China Mobile's under-strength TD-SCDMA 3G network.

However, it's not clear what kind of impact this has had on Apple's market penetration in China. Apple has distribution deals in place with the two other Chinese service providers, China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA), which have been signing up as many new 3G subscribers as China Mobile during the past 12 months. Both have begun taking orders for the new iPhones, and will begin selling both devices on September 20.

CEO Tim Cook has made a number of trips to China this year, and, at this stage, Apple appears to be close to a deal with China Mobile. The approval of the first LTE TDD iPhones for use on China Mobile's network this week seems to confirm that.

Analysts have suggested to the Financial Times (subscription required) that China Mobile would be keen not to have high-end users on its 3G network. "Why would China Mobile ever highlight the inadequacy of its 3G network by officially licensing an iPhone?" one said.

So, it's all about 4G.

China's State Council has called for 4G licenses to be issued by year-end. Zhang Xiaoqiang, a vice-chairman of the main economic planning body, NDRC, said Thursday that the licenses would be issued "soon."

— Robert Clark, contributing editor, special to Light Reading

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RitchBlasi
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RitchBlasi,
User Rank: Light Sabre
9/12/2013 | 4:29:44 PM
CDMA,
Yep.  Worked for AT&T for 35+ years, the last 14 in its mobility group, so yes, fully understand.  Also why CDMA users can't do simultaneous voice and data...right? Apple was eventually willing to produce a phone for 100 million subscribers, why not a potential 700+ million who could potentially use that technology.  Based on reading a number of articles and speaking with analysts, seems like the price-point is the issue.  Why produce a phone that no one wants to pay for.  
dvijay0
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dvijay0,
User Rank: Light Beer
9/12/2013 | 4:23:00 PM
Re: Apple and 4G
You do know that without cdma support, the iPhone would be useless over the Verizon wireless network, right? All voice traffic in Verizon Wireless network go over the cdma network.
mendyk
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mendyk,
User Rank: Light Sabre
9/12/2013 | 1:11:26 PM
Re: Which is it?
Apple has an 80% brand recognition in China, according to a market research firm called Avanti. That's tops among mobile device manufacturers. That suggests that visibility is not an issue.
RitchBlasi
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RitchBlasi,
User Rank: Light Sabre
9/12/2013 | 12:31:10 PM
More.....
Looks like China mobile wasn't the only one left off the list for a 4G device:

 

Apple's (NASDAQ:AAPL) newest iPhones, the iPhone 5s and 5c, do not support LTE on 2.5 GHz spectrum, which Sprint will use for a nationwide TD-LTE deployment.
RitchBlasi
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RitchBlasi,
User Rank: Light Sabre
9/12/2013 | 12:13:15 PM
Apple and 4G
Does it strike anyone else as being strange that since the iPhone is manufactured (by Foxconn?) in Shenzen China that Apple is unwilling to make a phone with TD-SCMA technology?  It went out of its way to make iPhones that run on CDMA networks in the U.S., which have a lower base of customers than China Mobile and is basically a mobile technology on its last dying leg. 
futurephil
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futurephil,
User Rank: Light Sabre
9/12/2013 | 11:31:36 AM
Re: Which is it?
I think you have to be visible before you can hope for (local) validation. They have to keep chipping away even while working through their strategy. A few kicks in the press won't matter in the long run.
R Clark
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R Clark,
User Rank: Blogger
9/12/2013 | 11:19:02 AM
Re: Which is it?
Fair cop. The headline should've said 'Apple LAUNCH underwhelmed'. As far as the real stuff is concerned, it doesn't get interesting until 4G kicks in.

But thinking Apple kickoffs in Beijing, I'm wondering which they would prefer: yesterday's lead balloon, or the iPad riot of 2011?

 
mendyk
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mendyk,
User Rank: Light Sabre
9/12/2013 | 11:09:03 AM
Re: Which is it?
This is a perception problem for Apple. It's a company that's still trying to emerge from Steve Jobs' shadow. Given that, and given the fact that China's mobile infrastructure isn't ready for 4G prime time, Apple may be better off just using China as its factory rather than hold half-hearted product launches there. China aside, don't you think the issues Apple seems to be having in Singapore are a cause for concern?
futurephil
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futurephil,
User Rank: Light Sabre
9/12/2013 | 11:00:22 AM
Re: Which is it?
I'm sure China is strategic to Apple. I'm sure Cook has loads of corporate reasons to travel there a lot. I'm not sure Apple is underwhelming in China simply because it has made some sound decisions about what not to do (yet) in order to gain market share.

 
mendyk
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mendyk,
User Rank: Light Sabre
9/12/2013 | 10:53:56 AM
Re: Which is it?
I think this question is better put to Apple than to LR. If China isn't strategic, why is Tim Cook spending so much time there?
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