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After losing exclusive access to Apple's iPhone, China Unicom now focusing on low-cost handsets

post #1 of 31
Thread Starter 
China Unicom has turned its focus to low-cost smartphones in an effort to win over new customers now that the carrier is no longer China's exclusive iPhone provider, and the strategy appears to be working.

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Apple is rumored to launch a new plastic iPhone this year.


The new approach for China Unicom, representative of the vast demand for low-cost smartphones in China, was detailed on Thursday by the Associated Press. The plan is apparently paying off, as China Unicom Ltd. has reported that its profits for the first half of fiscal 2013 grew by 55 percent.

China Unicom was the sole provider of the iPhone until March of 2012, when competing carrier China Telecom began offering Apple's smartphones in mainland China.

Demand for low-cost smartphones in emerging markets, particularly China, has helped to drive speculation that Apple could introduce a new iPhone model this year to address that market segment. Numerous leaks have shown off a plastic iPhone case in multiple colors, sporting the same 4-inch display as the iPhone 5.

While the plastic iPhone is expected to be Apple's new entry-level smartphone, the device won't negatively affect the company's margins, according to Ming-Chi Kuo of KGI Securities. He expects that Apple will price the new iPhone between $450 and $550, giving the company "decent profitability, but at the cost of volume."

The big prize for Apple in China remains China Mobile, the world's largest wireless provider with 715 million subscribers. For years it's been rumored that Apple was working on a deal with China Mobile, but to date the iPhone is still not officially available through the carrier.

Apple Chief Executive Tim Cook met with the CEO of China Mobile on a recent trip to the country. Cook has met with China Mobile a number of times, furthering speculation of a deal between the two parties that has yet to become a reality.
post #2 of 31
With every story and report, the upcoming plastic phone is looking like it WON'T be low cost.

More like a midrange phone that'll be the same price as the iPhone 4. I guess €400 isn't so bad for a new iPhone.

It's just hard to imagine paying $450 for a plastic iPhone, but at least it'll have the same specs as the iPhone 5. That means it should be better than pretty much every other smart phone available for the price.
post #3 of 31
A deal with China Mobile is a devil's bargain, because undoubtedly the government will demand some kind of technology transfer and/or the keys to a China-based App Store to take a bigger cut of profits and to enable more government control over what is sold to customers.

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post #4 of 31

Those prices have to be wrong.  Why would anyone buy last year's internals in a plastic housing if it's only 50-100 bucks cheaper than the flagship model?  

 

iPhone cheapo really has to start in the $350 bracket to make any kind of value-sense to the consumer.  

post #5 of 31
@spamsandwich I agree. The problem is all those stupid analysts who insist Apple compete in the low-end market will continue to force AAPL down until they do. I continue to challenge the idea these low-cost phones are actually smartphones and not just enhanced versions of the old simple phones everyone started with. It's the same thing Microsoft did with PCs. Flood the market with pieces of garbage so they can say they've won. Android phones are doing this and the world isn't better off only the vendors of the phones.
post #6 of 31
Quote:
Originally Posted by Gazoobee View Post

Those prices have to be wrong.  Why would anyone buy last year's internals in a plastic housing if it's only 50-100 bucks cheaper than the flagship model?  

 

iPhone cheapo really has to start in the $350 bracket to make any kind of value-sense to the consumer.  

Unlocked iPhone 5 starts at $650. It would be nice if they got it down to at least $400, but at $450, it would still be $200 less.

post #7 of 31
Quote:
Originally Posted by SpamSandwich View Post

A deal with China Mobile is a devil's bargain, because undoubtedly the government will demand some kind of technology transfer and/or the keys to a China-based App Store to take a bigger cut of profits and to enable more government control over what is sold to customers.

Why would the Chinese government make such a demand when it didn't do so in the other deals?

post #8 of 31
Quote:
Originally Posted by rob53 View Post

...the world isn't better off only the vendors of the phones.

 

Even the vendors are losing money!

post #9 of 31
Quote:
Originally Posted by Gazoobee View Post

Those prices have to be wrong.  Why would anyone buy last year's internals in a plastic housing if it's only 50-100 bucks cheaper than the flagship model?  

 

iPhone cheapo really has to start in the $350 bracket to make any kind of value-sense to the consumer.  

 

Quote:
Originally Posted by TheUnfetteredMind View Post

Unlocked iPhone 5 starts at $650. It would be nice if they got it down to at least $400, but at $450, it would still be $200 less.

 

I agree, $350 seems like more of a sweet spot for an unlocked iPhone.

 

But all the data is pointing to a $450 starting price. Although that's cheaper than the iPhone 5, will it be cheap enough?

post #10 of 31
Quote:
Originally Posted by StruckPaper View Post

Why would the Chinese government make such a demand when it didn't do so in the other deals?

 

The Chinese government partially owns China Mobile. I believe the other telecoms operate more independently of the government.

post #11 of 31
What to do, what to do? Make money at the expense of market share or lose money to get the bragging rights about market share? Financial reports consistently state that Apple is at the top of the profit mountain but the analysts are always squawking about market share. Apple and Samsung are the only two making any profit in the smartphone market but that's not good enough. You simply HAVE to sell more stuff than the other guy, no matter what the profit margin, or be considered a failure. Or so it goes.
post #12 of 31
Quote:
Originally Posted by StruckPaper View Post

Why would the Chinese government make such a demand when it didn't do so in the other deals?
So they can make Apple jealous that other people get to eat fortune cookies while Apple sits in the corner until they cave in.
post #13 of 31
I personally don't think Apple will go down to $350. The reason is because it looks likes a really great deal at that point and Apple isn't necessarily known for bringing something out that is a really great deal. It seems they like to go just a little above that. The only exception to this I would say is when they unveiled the iPad. (BTW, I'm not trying to dog Apple here, I have a ton of their products, I just think they view themselves as a company that can charge more than normal and so they will and there's not anything necessarily wrong with that)

I think they'll go with at least $400 but most likely $450.
post #14 of 31
Quote:
Originally Posted by StruckPaper View Post

Why would the Chinese government make such a demand when it didn't do so in the other deals?

We don't know what the Chinese government required of Apple (or anyone else) as a condition to sell devices in mainland China. I don't think the Chinese normally publicize it do they and it certainly wouldn't benefit Apple to bring it up. Personally I'd be pretty surprised if the Chinese didn't require Apple to give them a way to access user's iDevices if not the underlying code itself.
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post #15 of 31
Quote:
Originally Posted by lkrupp View Post

What to do, what to do? Make money at the expense of market share or lose money to get the bragging rights about market share? Financial reports consistently state that Apple is at the top of the profit mountain but the analysts are always squawking about market share. Apple and Samsung are the only two making any profit in the smartphone market but that's not good enough. You simply HAVE to sell more stuff than the other guy, no matter what the profit margin, or be considered a failure. Or so it goes.

I don't think higher market share has to equal lower profits. Many times it does, but it's not necessarily a rule. If Apple can find a way to gain market share and profit then that'll be really huge and I think Apple is capable of doing that. The margin might be hurt a little, but Apple's margins can handle it considering how high they already are.

 

Also, investors always want to know how companies are rolling the ball forward. Companies can continue to put money in the bank but if they're also not growing it concerns investors that the company could become stagnant. I'm not saying it's right but just that that's the way they think.

 

Apple has it's popularity behind it and so it would still be able to charge a slight premium for its products over others and still make a great profit with a greater market share.

 

I think it's a great time to invest in Apple right now. I think they're getting ready to see some huge growth and greater profit because of that growth.

post #16 of 31
Quote:
Originally Posted by blackbook View Post

 

 

I agree, $350 seems like more of a sweet spot for an unlocked iPhone.

 

But all the data is pointing to a $450 starting price. Although that's cheaper than the iPhone 5, will it be cheap enough?

 

I would argue that $450 is more like "upper middle" price range than even "midrange" but of all the things to predict the price point is probably the hardest, so likely we should just wait and see.  

 

I will only be in the market for one if it's better specs than the current iPhone 5 which seems kind of unlikely also.   

post #17 of 31
Quote:
Originally Posted by Gazoobee View Post

Those prices have to be wrong.  Why would anyone buy last year's internals in a plastic housing if it's only 50-100 bucks cheaper than the flagship model?  

iPhone cheapo really has to start in the $350 bracket to make any kind of value-sense to the consumer.  

The iPhone 4S sells well and it's only $100 less than the flagship model. Not everyone needs the latests device.
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Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
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post #18 of 31
Quote:
Originally Posted by AppleInsider View Post
Ming-Chi Kuo of KGI Securities... expects that Apple will price the new iPhone between $450 and $550, giving the company "decent profitability, but at the cost of volume."

He knows the demand elasticity for iPhones? What does he think is the optimal price?

post #19 of 31
Quote:
Originally Posted by blackbook View Post

 

 

I agree, $350 seems like more of a sweet spot for an unlocked iPhone.

 

But all the data is pointing to a $450 starting price. Although that's cheaper than the iPhone 5, will it be cheap enough?

Given that 

a) iPhones are the usually the '2nd' smart phone people buy.  (read:  if 9 out of 10 people stay on iPhone, and 3 out of 10 people migrate from Android 'on their next phone,'  eventually(4 years after market saturation), by my count, Apple gets to about 33% market share worldwide, a number Apple can live with).

b) Apple isn't about to race to the bottom

c) Apple is all about the critical minimal expected experience for the money (how high is the baseline experience for it's lowest priced phone in the current OS)

 

I see apple's 'low cost' project purely a method of 

1) getting weaned off 3.5" dimensions

2) getting 100% onto lightning (one of the reasons why the iPad 2 wasn't replaced by the iPad 3 any time this year as the 'low cost iPad).

3) upgrading internal componentry to align with iOS 7 key functional/experience requirements.

 

and eliminating both the 4 and the 4s from the SKU list this fall, and forking the OS next fall (iOS 7.x will be the last OS to support them) to drive iOS8 to a new class of experience.

 

Bottom line, while China is a key player, Apple won't bow to market pressures to maintain share by dropping quality or overall profits of the experience (plastic notwithstanding) to hit a price point.

 

I do think however, that Apple will erode their gross HW margins over time, and increase the cost of cloud services (or not decrease the cost of them as they improve efficiencies), to maintain overall profitability.  

post #20 of 31
Quote:
Originally Posted by jragosta View Post


The iPhone 4S sells well and it's only $100 less than the flagship model. Not everyone needs the latests device.

The question is can apple support 3 versions of hardware and still be considered a 'unified experience'

 

My guess is that iOS7 is a 'major' OS upgrade, and they want to eliminate the the '4' line to differentiate apples 'low end' against everyone elses who are running 3-10 versions behind on Android.   

 

Part of this is user experience (iOS7 is driving a very different UX, likely driving a new compute profile), and given that the .99 and 99 versions of their phone sell very well, having a '5c' a '5' and a '5s' all fully compliant to the iOS7 'minimum' experience will boost sales of both iPhones, and and iPads (an iOS7/Lightning halo).

 

And something that is a 'long view' strategy... And whose to say the anticipated flood of traded in/ iPhone 4 and 4s aren't the 'cheap iPhone' for the developing markets (enough CDMA and GSM phones to fit most carriers) which drive the 'intro' phone market, locking them into the ITMS ecosystem (end game).

post #21 of 31
Quote:
Originally Posted by Irving Muller View Post

I don't think higher market share has to equal lower profits. Many times it does, but it's not necessarily a rule. If Apple can find a way to gain market share and profit then that'll be really huge and I think Apple is capable of doing that. The margin might be hurt a little, but Apple's margins can handle it considering how high they already are.

 

Also, investors always want to know how companies are rolling the ball forward. Companies can continue to put money in the bank but if they're also not growing it concerns investors that the company could become stagnant. I'm not saying it's right but just that that's the way they think.

 

Apple has it's popularity behind it and so it would still be able to charge a slight premium for its products over others and still make a great profit with a greater market share.

 

I think it's a great time to invest in Apple right now. I think they're getting ready to see some huge growth and greater profit because of that growth.

Me neither. Get more people into the ecosystem. Over the last year Apple made $1Billion profit from the app store alone. A lower margin iPhone 5C would attract a lot of new customers to the appstore and potentially music purchases as well. Don't forget the knock on effect, people start out with an iPhone, next they want iPads, macbooks, iMac and so on.

 

I'm thinking $399 for 16G model would be a sweet price point.

 

That being said I wouldn't be acting on investment advice from an internet forum :-)

post #22 of 31
Quote:
Originally Posted by Irving Muller View Post

I don't think higher market share has to equal lower profits. Many times it does, but it's not necessarily a rule. If Apple can find a way to gain market share and profit then that'll be really huge and I think Apple is capable of doing that. The margin might be hurt a little, but Apple's margins can handle it considering how high they already are.

What would be a good amount of market share for Apple to have? Is it just a comfort thing? Or does a certain market share number actually have some merit?

The way I see it... Apple made billions of dollars when they only had 30% of the market. They made billions when they only had 20% of the market. And they will make billions when they reach 10% of the market.

The reason is... they sell enough products that have extremely good margins.

Who cares if the other guys sell more units? And some of those units barely have any margin in the first place! That's definitely a bad place to be!

Even if Apple makes a $300 iPhone (which they won't)... they are still competing against $79 Android phones around the world. Apple will never gain any traction in the low-cost smartphone segment.

And they aren't trying to anyway! Apple is not a low-cost smartphone vendor.

That's why I never understood saying simply "Android Market Share" when "Android" itself is made up of phones from $80 to $800.

Apple, on the other hand, only makes phones from $450 to $850.

Does it make any sense at all to compare the two platforms on sales/marketshare?

There were 187 million Android smartphones sold last quarter. And don't forget that "Android" is actually made up of dozens of manufacturers and includes hundreds of models sold around the world.

Then there's Apple, a single company and the only maker of iOS phones, selling 31 million.

So Apple is getting punishing for "not selling enough" or "they are falling behind in market share"

Sheesh...
post #23 of 31
Quote:
Originally Posted by Michael Scrip View Post


What would be a good amount of market share for Apple to have? Is it just a comfort thing? Or does a certain market share number actually have some merit?

Defining the future of the market.  

 

 

The old world view was you needed to be the market leader to be comfortable in the computer world.  IBM, Sun, MS, HP, DELL all sought to have 51% of the market, and ideally, 67% or more of a niche.

 

That was old world thinking

a) selling to IT/business/procurement types who wanted large vendors who would survive until the decision cycle retired.  (I can't remember how many... "Look at MSFT's Market Cap" arguments I had arguing for Unix/NeXT/DEC based solutions.   Better technology, but procurement was arguing based on a ...

b) a 10 year investment cycle in IT shops... Market size ensured some 'glide path.'

c) there were thousands of accounts, maybe millions of units in the field, therefore a few buying decisions could swing several %points of market share.

 

We are now in

a) selling to consumers, not procurement people

b) brand conscious, maybe even fashion conscious marketing

c) but more importantly, solving the problem of one person, yet in a manner that scales to billions.

d) a 2 year investment cycle (if that)

e) the buyer stickiness is in external service providers (itunes, icloud, facebook, salesforce.com), not in internal investments (IT staff, data centers)

f) there are billions of accounts.

 

 

Given that, everything I see is that Apple is not looking to control the market, but control a niche and more importantly, control the direction.  and to that end, 20-30% of the 6Billion market is enough, as long as no one vendor has no one brand that controls more.

post #24 of 31
Quote:
Originally Posted by blackbook View Post

 

The Chinese government partially owns China Mobile. I believe the other telecoms operate more independently of the government.

The Chinese government also partially owns China Unicom and China Telecom.

Quote:
Originally Posted by Gatorguy View Post


We don't know what the Chinese government required of Apple (or anyone else) as a condition to sell devices in mainland China. I don't think the Chinese normally publicize it do they and it certainly wouldn't benefit Apple to bring it up. Personally I'd be pretty surprised if the Chinese didn't require Apple to give them a way to access user's iDevices if not the underlying code itself.

 

As mentioned above, the government has part ownership of all three carriers. Are you suggesting they are demanding more for one company than for the other two? Any credible source for this? Thanks.

post #25 of 31
Quote:
Originally Posted by StruckPaper View Post

The Chinese government also partially owns China Unicom and China Telecom.

As mentioned above, the government has part ownership of all three carriers. Are you suggesting they are demanding more for one company than for the other two? Any credible source for this? Thanks.

China Mobile has a larger market share than the other two combined. It's like the music industry allowing Apple to sell music on Macs while not allowing anyone else to sell it on Windows. The Mac had a smaller market share back then, so anything goes, as nothing big could go wrong. If the music industry allowed selling music on Windows, if the system wasn't tightly controlled problems might blow out of proportion, because of the sheer size of Windows market share.

It the government allows it for Unicom, nothing big could go wrong, and the benefit is they can make Apple jealous. If they allow it for China Mobile without tightly controlling it, things can go wrong.
post #26 of 31
Quote:
Originally Posted by blackbook View Post

With every story and report, the upcoming plastic phone is looking like it WON'T be low cost.

More like a midrange phone that'll be the same price as the iPhone 4. I guess €400 isn't so bad for a new iPhone.

It's just hard to imagine paying $450 for a plastic iPhone, but at least it'll have the same specs as the iPhone 5. That means it should be better than pretty much every other smart phone available for the price.

 

This was always what "lower cost" referred to; a new model with an initial retail price lower than their flagship model. How anyone could interpret "lower cost" to mean a loss-leading, sub-$200 off contract is beyond me. That would completely tank sales of their flagship model; premium hardware where Apple makes their money. 
 
If they want to appeal to a new market segment they want to edge in slowly. It serves many purposes to be seen to be at the premium end of a lower market segment. In the short term Apple will cede some smartphone buyers to Android. But customers that don't value your product enough to spend more than it costs to make aren't worth chasing. Anyway, fragmentation and lower investment in apps make Android less adhesive than iOS, so these markets may aspire to own Apple's devices eventually. The latter really comes down to whether Apple's motives are interpreted as "tasteful" rather than "controlling". I see a little of both, but the trade-off is more than worth it for me and I think the majority of users.
 
I think most people are glad we are moving towards an internet without flash and have an efficient model for managing malicious software that doesn't implicitly trust developers and palm all the responsibility off onto users.
post #27 of 31
Quote:
Originally Posted by blackbook View Post

I agree, $350 seems like more of a sweet spot for an unlocked iPhone.

 

But all the data is pointing to a $450 starting price. Although that's cheaper than the iPhone 5, will it be cheap enough?

 

For customers, the key is the upfront price.

 

The magic number for people all around the world, seems to be paying $200-250 upfront.   It can be carrier subsidized down to that price, or there can be trade-in or external loan programs.  But that's a killer spot.

 

So the trade-in & loan programs Apple has been using in India and China could be harbingers of what's to come.


Edited by KDarling - 8/8/13 at 6:46pm
post #28 of 31
Quote:
Originally Posted by em_te View Post


China Mobile has a larger market share than the other two combined. It's like the music industry allowing Apple to sell music on Macs while not allowing anyone else to sell it on Windows. The Mac had a smaller market share back then, so anything goes, as nothing big could go wrong. If the music industry allowed selling music on Windows, if the system wasn't tightly controlled problems might blow out of proportion, because of the sheer size of Windows market share.

It the government allows it for Unicom, nothing big could go wrong, and the benefit is they can make Apple jealous. If they allow it for China Mobile without tightly controlling it, things can go wrong.

With all due respect, you're just making this up. Why do people here do this so often?

post #29 of 31
Quote:
Originally Posted by KDarling View Post

 

For customers, the key is the upfront price.

 

The magic number for people all around the world, seems to be paying $200-250 upfront.   It can be carrier subsidized down to that price, or there can be trade-in or external loan programs.  But that's a killer spot.

 

So the trade-in & loan programs Apple has been using in India and China could be harbingers of what's to come.

If I am mistaken, iPhone 4 and iPhone 4S are beating those price points up front. How will iPhone 5C be more appealing?

post #30 of 31
Quote:
Originally Posted by StruckPaper View Post

With all due respect, you're just making this up. Why do people here do this so often?

No offence taken. This is made up, but that's what "hunches" are. It's my hunch of what's happening. I'd like to hear your take on this.

post #31 of 31
Quote:
Originally Posted by StruckPaper View Post

Why would the Chinese government make such a demand when it didn't do so in the other deals?

Because China Mobile is partially government owned, just like China Unicom, however it is also their largest telecom. The big deals made with foreign companies often include wholly unreasonable terms and it is up to the negotiators between the parties to form a deal that works.

Even if it takes another ten years of negotiations, Apple should never succumb to pressure to make a deal.

From the China Mobile Wikipedia page:

China Mobile likely enjoys substantial protectionist benefits from China's government[11] but also experiences frequent government intervention in its business affairs.[12] Government control is maintained through a presumably government-owned holding company, China Mobile Communications Corporation (CMCC), that owns 100 percent ownership of China Mobile (HK) Group Limited,[13] which in turn holds over seventy percent ownership of China Mobile–the remainder being controlled by public investors.[2] Established in 2000,[13] CMCC is China Mobile Ltd's current parent company as of 2011.[14]
Edited by SpamSandwich - 8/9/13 at 10:59am

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