Apple's iPhone sales could falter in China as government asks carriers to cut subsidies, UBS says
Chinese authorities have begun to pressure the nation's massive, state-owned wireless carriers to roll back marketing expenses by as much as $6 billion, an edict that could force cuts to handset subsidies that least one analyst believes may have an impact on sales of high-end devices like the iPhone.
Apple Store in Beijing's Sanlitun neighborhood
China's State-owned Assets Supervision and Administration Commission, which oversees the country's numerous state-owned companies, has asked China Unicom, China Telecom, and China Mobile to slash marketing costs by 20 percent, according to UBS analyst Steven Milunovich. More than one third of those cuts are likely to be handset subsidies, Milunovich said in a Friday morning note to investors, a copy of which was provided to AppleInsider.
Thanks to sales and luxury taxes, iPhones in China sell for $100 or more over their cost in other countries. This premium -- combined with the relatively low per-capita income of Chinese consumers -- has increased the importance of subsidies and other financial instruments, like payment plans, in selling the devices.
Apple would not be the only smartphone maker affected by the cuts, but it does own 33 percent of the market for handsets over $500. Because the Chinese market is relatively immature, Milunovich argues that it is difficult to predict how the market would respond.
"Elasticity of the high-end user remains untested though any subsidy cuts could slow recent momentum," the analyst wrote of Apple's growth in the Asian giant.
In addition to reeling in costs, SASAC also plans to create a new state-owned company that would own and control mobile phone towers. Milunovich worries that this could slow down rollout of China's 4G infrastructure, forcing China Mobile to cut its 4G subscriber targets -- of which the iPhone accounts for the lion's share -- in half, further hampering growth.
Apple Store in Beijing's Sanlitun neighborhood
China's State-owned Assets Supervision and Administration Commission, which oversees the country's numerous state-owned companies, has asked China Unicom, China Telecom, and China Mobile to slash marketing costs by 20 percent, according to UBS analyst Steven Milunovich. More than one third of those cuts are likely to be handset subsidies, Milunovich said in a Friday morning note to investors, a copy of which was provided to AppleInsider.
Thanks to sales and luxury taxes, iPhones in China sell for $100 or more over their cost in other countries. This premium -- combined with the relatively low per-capita income of Chinese consumers -- has increased the importance of subsidies and other financial instruments, like payment plans, in selling the devices.
Apple would not be the only smartphone maker affected by the cuts, but it does own 33 percent of the market for handsets over $500. Because the Chinese market is relatively immature, Milunovich argues that it is difficult to predict how the market would respond.
"Elasticity of the high-end user remains untested though any subsidy cuts could slow recent momentum," the analyst wrote of Apple's growth in the Asian giant.
In addition to reeling in costs, SASAC also plans to create a new state-owned company that would own and control mobile phone towers. Milunovich worries that this could slow down rollout of China's 4G infrastructure, forcing China Mobile to cut its 4G subscriber targets -- of which the iPhone accounts for the lion's share -- in half, further hampering growth.
Comments
Ah shucks. Just when we thought Apple was out of danger... doomed again.
I usually avoid cliches "like the plague," but unfortunately, for the Chinese government, the "cat's out of the bag!"
Go Apple!
Good job, get some fear going to cause panic and drive down the stock.
Too much good news -- hey double down with a big story about Apple not having multitasking on the iPad ready in time.
niiiice
/S
I just don't understand people sometimes. Why is it so hard to understand that China can afford the iphone better than the US. They have over 1 billion people, their middle class is bigger than that of the US. Currently China is the biggest buyer of luxury goods. By 2015, they will be responsible for buying 1/3 of the worlds luxury goods. People needs to stop with that BS about China, educate yourself. http://english.cntv.cn/program/bizasia/20130607/104865.shtml
Check.
Ignore.
It makes sense that Chinese regulators want subsidies cut. They would rather the Chinese consumer buy the less expensive homegrown smartphones rather than buying higher-priced foreign brands. There's nothing wrong with them trying to favor their own local brands. However... Apple certainly does invest a lot of money into China and the Chinese consumer is certainly asking for Apple products, so I think everything will balance out and in the short-term Apple is not likely to be affected by such a move. Moreover, Apple can certainly afford to create a low-cost financing program for iPhones. Anyway, I'd hardly think that after China Mobile cut a deal with Apple they're not going to shoot themselves in the foot by cutting iPhone subsidies. They've most likely cut a contract with Apple that requires them to sell X amount of iPhones and cutting subsidies isn't going to help them sell iPhones. This subsidy cut threat does pop up from time to time and it's always Apple that will supposedly lose the most business.
Gee, isn't that an example of "BIG GOVERNMENT" that should have American business owners fleeing for the exits? Even minor regulatory activity by the feds in the U.S. is treated like it's going to ruin the business climate, yet look at all the American companies flocking to China and calling it crucial to their business success.
???iPad??????????
http://autos.udn.com/topic/car/news/article.jsp?type=article&f_SUB_ID=46&f_ART_ID=21613
According to this article Apple is planning to build iPad in US.
???iPad??????????
http://autos.udn.com/topic/car/news/article.jsp?type=article&f_SUB_ID=46&f_ART_ID=21613
False.
The problem with China is Import and Sales Tax. That is why there were a rumor with Foxconn helping Apple to form a Subsid within China to works things out.
Companies that invest in China and then get burned, it's their own d*mn fault in my opinion. Different governments have different levels of regulation, ok, you can deal with that. But why would you put any of your money, whether in the form of plant, capital or just plain cash, in a jurisdiction that doesn't have an established record of protecting property rights? Property rights are the fundamental, if you don't want to lose your money