Will Apple crash the Chinese market this Friday?
Aug 27th 2009 8:30AM
Updated Dec 4th 2009 12:36PM
When an executive with Chinese mobile carrier China Unicom confirmed that the Apple iPhone would be discussed in a Friday briefing, the entire universe of Apple (AAPL) watchers said this meant that the two companies would announce the launch of an iPhone in China on August 28. MacWorld UK had already spotted an Apple iPhone product specs page on China Unicom's website.
The confirmation that the iPhone would be discussed takes what had been a rumor and makes it an inevitability, if not for this Friday then for the very near future.
The news could not have come at a better time, with Apple still smarting from a major PR black-eye suffered when the company had to cop to the fact that it had put the Google Voice mobile VoIP telephone product into purgatory for specious reasons.
A China handset arrangement could be the biggest boon to Apple since the launch of the iPod sparked a company turnaround nearly a decade ago. With more than one billion citizens, China's domestic market is the ultimate growth vehicle for global companies. And Apple would only have to grab a very small sliver of China's booming handset market to lock in billions in additional profits for shareholders.
Beyond the sheer number of potential customers, there are other reasons why an iPhone deal could actually outperform even the wildest expectations of Apple analysts. For starters, there's the wireless networks. Like other countries in Asia, China has an advanced wireless broadband architecture up and running. Mobile broadband coverage is superior in China and the download speeds are often faster than the norm in the U.S. This superior wireless capability could conceivably make the experience of running an iPhone far more compelling. A more compelling experience should translate into more customers.
Further, speculation that Apple will only sell a cheaper version of its iPhones could be untrue. Chinese consumers are perfectly happy to pay world class prices for marquee products. For example, Nike shoes actually fetch higher average sales prices in China than in the U.S. If Apple were able to sell higher-priced models in China (and Apple rarely messes up on product pricing or market segmentation), then that could mean significantly more profits for Steve Jobs than the profits baked into most financial models, which anticipated China getting a lower-end $199 or $99 iPhone.
Lastly, Apple's partnership with China Unicom is a source of strength. China Unicom plays second fiddle in the wireless market, a distant second behind behemoth China Mobile. An exclusive deal to sell iPhones could help China Unicom gain much needed market share over its larger rival.
In other words, Apple has leverage. And Apple uses leverage very well. Witness the sweetheart deal it struck with AT&T, a deal that gives Apple an unprecedented revenue share for a handset maker and hefty subsidy for phones. The deferred sales numbers from iPhone purchases and AT&T subscriptions purchased by iPhone customers were by far the biggest revenue drivers for Apple in its last two quarters. If Apple can strike a deal that resembles the AT&T accord with China Unicom, then Apple will be printing money.
This is not to say Apple faces no obstacles. Major threats exist such as government intervention and counterfeit phone makers that have frustrated other Western consumer electronics companies. Chinese consumers, already used to advanced smartphones that best most iPhone competitors, could turn their noses up at the iPhone. But I'd bet that Apple will have a China hit on its hands and Apple equity analysts will shortly have to sharpen their pencils to figure out the real target price of a company that can do very little wrong these days.