Not Everyone in China Wants to Buy an iPhone

For those of you who took an economics course at some point in your lives, I am happy to report "price elasticity" is still alive and kicking. It appears the $1000 price point for Apple's (AAPL) iPhone is a bit of an issue for the "middle class" of China, and this is for a phone without a service contract!

• The price tag for a 32GB iPhone 3GS in mainland China: 6,999 yuan, or $1,024, which doesn't include the service contract.

This data will surely strike at the hearts of those who use 1st grade logic... "1.3 billion Chinese x 2 iPhones per household = nirvana".

Via Bloomberg:

• Apple's Chinese partner sold 5,000 iPhones in the country since last week’s debut, raising concern the handset’s price is undermining the U.S. company’s ability to gain customers in the world’s biggest phone market.
• China Unicom (Hong Kong) Ltd. President Lu Yimin told reporters in Hong Kong today demand has been “quite good” since the Chinese carrier began selling the iPhone, stripped of broadband-Internet capability, in stores on Oct. 30.
• Unicom’s iPhone plan “will be an interesting exercise in how to sell an inferior product at a higher price,” said Duncan Clark, chairman of BDA China, a Beijing-based consultant.
• Apple, based in Cupertino, California, had been expected to sell about 500,000 iPhones initially in China via Unicom, Barclays Plc analyst Ben Reitzes wrote in a report today.
• China had 719.8 million mobile-phone users at the end of September, after adding 9.3 million in the month, according to government data.
• Unlike iPhones available outside of mainland China, Unicom sells the handsets without so-called Wi-fi capability.
• “It is selling a ‘castrated’ version of iPhone at a higher-than-market price,” BOC International analyst Allan Ng, wrote in an Oct. 23 report. The carrier’s marketing was “incompetent,” according to Ng, who said demand was “lackluster.”
• The number of units sold in China is disappointing compared with other markets, according to Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. By comparison, Apple said it sold 270,000 iPhones in the 30 hours after the first model went on sale in the U.S. back in 2007.

But there is always a way around issues such as this... the black market:

• Chinese consumers may buy 1 million iPhones from unofficial distributors this year, according to BDA estimates. IPhones sold through these outlets will have Wi-fi and cost less than those distributed by Unicom, according BDA.

Disclosure: No position

Comments

[vassar]

Wonder if there is a lot of smoke and mirrors here?

2009 Nov 04 08:09 AM

[John Galt]

You could buy iphones in America, unlock them, and then sell them for more money in Europe, Asia, Russia etc. People are already doing this...

2009 Nov 04 09:13 AM

[rajsekar]

This sales number was expected but Apple and many analysts thought that China was a different market. Their assessment has been off track. The same problem happened during India launch and similar projections were given by analysts. iPhone is a complete flop in India and China will follow suit. Expect the same low numbers from South Korea launch. Apple cannot replicate its success outside US for many reasons. Everyone says that China has a 700 million mobile phone base and just a small fraction of those users buying iPhones will be sufficient to boost Apple's market share. That's not going to happen. For all the great things written about iPhone, analysts should know that US sales rose after Apple slashed handset price to $199. Apple will see increased sales when AT&T introduces buy 1, get 1 iPhone free for $99. It's not too late for this sales to be announced.

2009 Nov 04 10:23 AM

[Old Hand]

"Everyone in China ..." is a silly statement to make. There is no reason to expect that adults in a country of nearly 1 billion people would make a buying decision for an iPhone or any other product for that matter.

The key point is the enormous size of the market in China and the fact that target customers were located in a handful of giant cities with existing infrastructure.

Hair cut these markets by any reasonable number, and you still end up with an enormous business opportunity that is much larger than than the individual markets of the US or Western Europe.

We should live so long as to be sitting on top of this kind of situation, which Apple surely is.

2009 Nov 04 10:35 AM

[TraderMark]

iPhone Arbitrage


On Nov 04 09:13 AM John Galt wrote:

> You could buy iphones in America, unlock them, and then sell them
> for more money in Europe, Asia, Russia etc. People are already doing
> this...

2009 Nov 04 10:45 AM

[mollytjm]

and Apple will be able to sell wifi iPhones in a little while, so that could also make a difference. i didn't buy the first iPhone because i was locked into a contract with another carrier...that happened to a lot of us and there will be some like that in China. Apple isn't just sitting around figuring things will be ok... they'll do what they have to do to keep increasing market share worldwide. and i'll bet Palm wishes they had this same situation!

2009 Nov 04 11:39 AM

[JamesApple]

iPhone suits the China market like a glove (don't look at India, the Indians are religiously cheap suitable for Nokia). What it needs to fit iPhone to the ultra frugal (not cheap) Chinese is partnering with the Chinese merchants establishing bonding customer relationships maximizing merchant-customer activities namely in retail, medical, trading, legal, and financial areas. China is in dire need of such an infrastructure that's badly needed to supplement and sustain China's strong economy. Apple needs to provide this infrastructure that will be adopted by the China economy and political system, there are currently no such infrastructure in place in China, iPhone is perfect for China due to iPhone's general purposeness on top of the best hardware and dynamic software platforms allowing iPhone-to-iPhone collaboration in conjunction with telephony capability (Chinese honor verbal contracts more than written and signed documents) allowing quick business and personal dealings supported by the iPhone's world best useability and media richness will make the iPhone indispensible to the versatile and dynamic Chinese culture that none others than only Apple can meet.

2009 Nov 04 05:24 PM

[JamesApple]

Note: China's shopping system is very primitive, shops are small, numerous, and highly bargain-intensive. Unlike the Walmart, Sears, Macy's returnable merchandising system we are used to. Chinese merchants rely on mouth to mouth publicity and local customers. Notifications from merchants to customers with the ability to bargain online with the customer and make deals is paramount to businesses. The iPhone is perfect for that.

2009 Nov 04 05:34 PM

[mna]

What else did Apple expect? $1000 phones? a third grader could've told you that the price point was stupid. I suspect it's part of a grander strategy to establish Apple as a premium brand in the minds of the Chinese public first, and that they really don't care about their initial sales numbers. That's my only explanation. Otherwise, the marketers can't possibly be this dumb. Or maybe it's Steve's inflated ego talking again.

2009 Nov 04 05:38 PM