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Cheaper iPhone in 2012 could triple Apple's booming sales in China

post #1 of 16
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A lower-priced iPhone could generate a nearly three-fold increase in demand for Apple in China, as its device leads soaring demand for 3G handsets and smartphones, according to a new analysis.

In a research note released on Wednesday, investment bank Morgan Stanley reports that, among Chinese customers who are in the market for a 3G handset but hesitant to buy Apple's iPhone, 85% cite price as the key factor in their decision. Survey responses further suggest that, at the right price point, demand for the iPhone could increase by as much as 2.6x.

Morgan Stanley's AlphaWise market survey indicates that Chinese respondents already looking to buy a 3G phone are willing to pay an average maximum price of 2,716RMB ($425). But, those who said they were unlikely to buy an iPhone noted that 2,200RMB ($344) is the most they could afford. The firm's findings fall roughly in line with a mid-range 'sweet spot' of $350 that industry watchers believe would give Apple greater market penetration.

Apple does appear to have built up substantial brand value among Chinese consumers, as respondents not planning on buying a 3G phone said they would only pay a maximum of 1,631RMB ($253) for a 3G device.

Nearly 80% of respondents marked Apple as the leading smartphone brand in China, toppling the previous leader Nokia. Also, purchase intentions for the iPhone are a whopping 4.5 times its current market share. That's a noteworthy indicator that Apple still has plenty of room for growth in the world's most populous nation.

But, if Apple is to maintain sales momentum in China, it will need to release its new iPhone 4S there soon. According to the firm, the Cupertino, Calif., company's share of mobile phone purchases in the region fell from 12% to 7% last quarter, largely due to customers holding out for Apple's next-generation handset.

The survey, which draws from online interviews with 2,050 Chinese consumers, went on to show that accelerating 3G adoption is pushing the Chinese market toward phones that feature data-centric functionality, such as streaming videos and fast email access.



China saw an increase in interest for 3G-capable handsets in the second half of 2011, with 90% saying they were likely to buy a 3G phone and 91% opting for a smartphone as their next device, up from 87% and 88%, respectively, from the first half of the year. This upward trend is due in large part to current 2G users wanting to make 3G and smartphone upgrades, causing the firm to suggest that smartphones will move from a niche market into the mass market in China.

Despite the allure of 3G functionality, Chinese users stress that cost is still the deciding factor in purchasing a phone or upgrading their network. In the most recent survey, there was a noted shift in importance from service plan cost to device price after the two were nearly identical in the survey from the first half of 2011. 64% of respondents said they were unlikely to get 3G phones because of device price compared to 53% blaming service plan cost.



After bringing its focus to bear on the region, Apple has seen impressive growth in China. The Greater China area became the company's second largest market, behind only the U.S., in the third quarter of 2011. During a quarterly earnings call last week, executives also indicated that China is "the fastest growing region by far."

The iPhone maker's China sales were $4.5 billion in the September quarter, 16 percent of its total revenue. That's up from $3.8 billion in the June quarter and just $3 billion in all of fiscal 2010.

Apple's retail initiative in China is just taking, as it currently operates just five stores in two cities on the mainland and one in Hong Kong. The company said last year that it plans to open a total of 25 in the country in coming years.

CEO Tim Cook said earlier this year that he believes Apple is just "scratching the surface" of the Chinese market. Meanwhile, one analyst believes that the mobile market in China poses as much as a $70 billion opportunity for Apple.
post #2 of 16
It this supposed to mean they will be subsidized in China, or are we being told Apple will start making cheap plastic junk?

Can anyone even picture the keynote for this? "Now, or great engineers have made an even cheaper phone using the A3 chip. We think users will enjoy using this phone."

Really?

I thought they already had a lower priced phone. The 3GS.
post #3 of 16
Quote:
Originally Posted by Vadania View Post

It this supposed to mean they will be subsidized in China, or are we being told Apple will start making cheap plastic junk?

Can anyone even picture the keynote for this? "Now, or great engineers have made an even cheaper phone using the A3 chip. We think users will enjoy using this phone."

Really?

I thought they already had a lower priced phone. The 3GS.

Umm, no. We're being told that if Apple made their iPhone available for a cheaper price, they could have larger market share in China.

You're right, Apple already makes the 3GS, which I find, after a couple of weeks of use, is actually still a very capable smartphone. However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses.

Apple will eventually release a cheaper version of the iPhone 4 and probably be able to make it a lot cheaper than the current 3GS due to the economies of scale by sharing some the same parts with the iPhone 4S.
Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.
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Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.
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post #4 of 16
Quote:
Originally Posted by mjtomlin View Post

However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses..

The largest carrier in China uses GSM(2G) which is why they have 10 million iPhones on the network. China's smallest carrier uses CDMA.
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post #5 of 16
Ha ha. In the third world (where I grew up), people will always respond to a survey with 'cheaper price' as the number one reason. Even though there are other non-price ways to increase sales.
post #6 of 16
One thing that cross my mind is, can apple keep up with an ever increasing demand and if so what if the supply gets hit hard by some sort of factory failure that could delay supplies for lets say 3 to 4 weeks? Would apple lose its luster and would apple suffer in the eyes of perspective customers? Also how can one company supply the whole world. Lets say china and its 1 billion people, take a small percentage of those people and you have one huge supply nightmare on your hands. All this resting on one VP's shoulders? Wow.
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post #7 of 16
Quote:
Originally Posted by mjtomlin View Post

Umm, no. We're being told that if Apple made their iPhone available for a cheaper price, they could have larger market share in China.

You're right, Apple already makes the 3GS, which I find, after a couple of weeks of use, is actually still a very capable smartphone. However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses.

Apple will eventually release a cheaper version of the iPhone 4 and probably be able to make it a lot cheaper than the current 3GS due to the economies of scale by sharing some the same parts with the iPhone 4S.

China Telecom and it's premium brand Go Tone is the largest carrier and runs mainly a GSM/GPRS/EDGE network and now just preparing to roll out 3G/LTE service in major markets such as Shanghai and Beijing. I'm a Go Tone user and assure you CDMA/3G service in NOT available on this network now but when it comes they will likely leap-frog Unicom into 3G/4G.

China Unicom, the No. 2 mobile carrier has always been a CDMA system and now provides 3G in major markets. Check your facts and you will find the (non-exclusive) deal Apple made in China was Unicom.

My wife uses Unicom for 3G on her iPhone 4 and switches to 2.5G China Mobile account for cheaper 2G voice call if she is going to cook congee for long time.

China market it totally different than USA. There is no possibility to succeed with exclusive deals and most people have multiple SIMs so jailbreak phone is a must. If buying an imported iPhone from the street the seller will automatically include jailbreak.

In fact, what I would say is a feature Apple needs to add for China market is "Dual SIM" capability, most of the smartphones and high end feature phones sold in China have this now as multiple carriers is reality, my wife dislikes having to change her SIM manually.

BTW, right now, Shanghai/Beijing street price for 4S imported from USA is RMB 10,000 !!!! http://forums.appleinsider.com/images/smilies/1eek.gif Should fall to about RMB 6,000 by December but short supply right now makes this very expensive status symbol. So far I see one, white color.
post #8 of 16
Quote:
Originally Posted by tylerk36 View Post

One thing that cross my mind is, can apple keep up with an ever increasing demand and if so what if the supply gets hit hard by some sort of factory failure that could delay supplies for lets say 3 to 4 weeks? Would apple lose its luster and would apple suffer in the eyes of perspective customers? Also how can one company supply the whole world. Lets say china and its 1 billion people, take a small percentage of those people and you have one huge supply nightmare on your hands. All this resting on one VP's shoulders? Wow.

Apple would likely have to have factories in a few places around the world. Even if supply was stopped for the time you say, I doubt it would have much impact on consumers who are really waiting to own an iPhone. Only the jackass analysts and media would be exaggerating any shortages. There is absolutely nothing guaranteed when you have to depend on suppliers. Consumers should just learn to be more patient. Apple does have multiple suppliers, but if one runs into difficulties, Apple would still run into some shortages.

Anytime a company is running up against sudden huge demand and the factories are already running at full output, there's little that can be done. Consumers will just have to wait. That isn't necessarily a company's fault. Besides, it's a lot better to have a factory running at peak capacity then to have a factory that's only running at half capacity due to low demand for a product.
post #9 of 16
There are many people buying iPhone 4S at HKD10,000 (for 16G iPhone 4S) on the first day when iPhone 4S reaches HK's grey market on Oct15th, most from Australia market.

HKD10,000 is USD1250.

However, most people do not buy it for Hong Kong use, 90% ended up going to China and resell for more than USD1600 a piece.




wlclhk
post #10 of 16
Quote:
Originally Posted by mjtomlin View Post

Umm, no. We're being told that if Apple made their iPhone available for a cheaper price, they could have larger market share in China.

You're right, Apple already makes the 3GS, which I find, after a couple of weeks of use, is actually still a very capable smartphone. However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses.

Apple will eventually release a cheaper version of the iPhone 4 and probably be able to make it a lot cheaper than the current 3GS due to the economies of scale by sharing some the same parts with the iPhone 4S.


China Unicom uses CDMA too. China Mobile uses GSM.
For GSM market, Many Chinese people care to own the phone and the apps. Data plan is lower priority while EDGE is available in GSM.

Wlclhk
post #11 of 16
We've heard this so many times before - if they build/price an iPhone for the emerging markets like China, India, etc there is a huge market opportunity but Apple doesn't seem interested. If they don't address this market the Android makers will and make a fortune in the process. Maybe when the iPhone 5 comes out next year they will keep the iPhone 3GS for emerging markets only and drop the price.
post #12 of 16
Quote:
Originally Posted by AppleInsider View Post

A lower-priced iPhone could generate a nearly three-fold increase in demand for Apple in China, as its device leads soaring demand for 3G handsets and smartphones, according to a new analysis.

The 3GS is already free. How much cheaper could it be? What sort of a "lower-price iPhone" could be better than free?
post #13 of 16
Quote:
Originally Posted by Shaun, UK View Post

We've heard this so many times before - if they build/price an iPhone for the emerging markets like China, India, etc there is a huge market opportunity but Apple doesn't seem interested. If they don't address this market the Android makers will and make a fortune in the process.

Which free Android phone is anywhere near as good as the free iPhone?

Apple ALREADY builds a chap iPhone. ONe that could not possibly be cheaper, because it is free.

Free is cheap. Free is as chap as possible unless you start paying the Chinese to accept them.
post #14 of 16
Apple doesnt need to build a Cheaper product.
As mentioned the 3GS is Free with a 2 year contract .

AT&T and Verizon need to have cheaper plans.

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post #15 of 16
The 3GS is $375 (US), and those surveyed in China only want to pay $344.

I'm guessing they are talking about un-subsidized pricing (great in-depth reporting, btw) -- Chinese carriers typically do not subsidize, although I thought I read some were be subsidizing the iPhone.
post #16 of 16
Quote:
Originally Posted by tylerk36 View Post

One thing that cross my mind is, can apple keep up with an ever increasing demand and if so what if the supply gets hit hard by some sort of factory failure that could delay supplies for lets say 3 to 4 weeks? Would apple lose its luster and would apple suffer in the eyes of perspective customers? Also how can one company supply the whole world. Lets say china and its 1 billion people, take a small percentage of those people and you have one huge supply nightmare on your hands. All this resting on one VP's shoulders? Wow.

If I read asymco's website correctly, Apple is investing heavily in machinery and equipment. Strange for a company that out sources its manufacturing.

How much do Apples factories cost?
http://www.asymco.com/2011/10/16/how...actories-cost/
Quote:
Before I begin, I should make clear what this asset represents and what it does not represent. These expenditures cover equipment used in production. They do not include components used in the production nor loans to suppliers for purchasing equipment. These are fixed assets that can be depreciated on a schedule and have specific tax treatment as a result. These are, in plain language, instruments used for producing things to be sold. They are things Apple owns.

Quote:
The data suggests spending on equipment is correlated with the volume of production of its iOS devices. However, Apple is understood to be a company that outsources its production and does not own its own factories. Claiming that it keeps equipment used in the production of iOS devices on its books is an extraordinary claim.

I make a further claim that the scope of spending itself is extraordinary.

Quote:
But this analysis shows that Apple has gone much further toward integrating its value chain. It suggests that a large part of the tooling in its supply chain is owned by Apple. It suggests that those tools are put out of reach of its competitors.


Putting capital to work
http://www.asymco.com/2011/10/24/put...pital-to-work/



The tipping hand of production: How Apple foreshadows iOS volumes
http://www.asymco.com/2011/10/27/the...s-ios-volumes/
Quote:
Looking forward, the company predicts $8 billion in PP&E, exactly twice what it forecast last year. Retail expansion is forecast at $900 million an increase of 50% and Infrastructure (M&E) increase of 110% to $7.1 billion.

Knowing that Apple tends to over-spend on M&E, we can assume that they will at least double spending on machinery and equipment. Knowing further that increase in M&E spending correlates to iOS device production (see chart at left noting the inset scale marked with 150 million units), it implies that iOS device production is set to continue growing at the same rate it always has: 100%.


The jump in Previous Year's Forecast Infrastructure from 2011 to 2012 is interesting, no.
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