July 22, 2017

Cheaper iPhone Will Cost More in China

But the cost of the phone — more than $700 in China — will still keep Apple’s phones beyond the reach of most Chinese consumers. And that predicament only underscores what has become increasingly clear in recent months: that Apple’s fortunes in China largely depend not on any phone, but on reaching a deal with China Mobile, the country’s largest cellphone carrier.

On Wednesday, Apple took another step in that partnership, when the Chinese government said that Apple’s phones could run on China Mobile’s new cell network, essentially paving the way for a deal between the companies.

An agreement would instantly give Apple access to China Mobile’s 700 million customers, and reaching it might require Apple to bend on price. China Mobile has been holding out on a deal for years, and it is now positioned to ask for better terms with Apple.

“The only way they’ll have a significantly better time in China over the next 12 months is if they can sign China Mobile,” said Jan Dawson, a telecom analyst for Ovum. “A small percentage would be a large number of new customers for Apple. So it’s even more crucial now that Apple gets that deal done.”

Apple has recently pursued an aggressive strategy for China. For the first time, Apple’s new phones will be released in China at the same time as they are in the United States. Analysts say the new gold color being offered for the higher-end iPhone 5S was probably designed for wealthy Chinese who enjoy flashing smartphones the same way they show off jewelry. And Apple has tailored some software features of its products for the Chinese, including easier setup for Chinese e-mail services.

China’s cellphone market is growing quickly, surpassing the American market last year. But so far, most Chinese consumers are gravitating toward cheap Android smartphones that can be bought for as little as $100 at full price from handset makers like Xiaomi, Huawei and ZTE.

Apple has been left as No. 6 in the Chinese market, and sales of its products in the country were down 4 percent in the second quarter compared with the same period last year. Though Apple is still enormously successful, its profit growth has slowed and its stock price has struggled. On Wednesday, the company’s shares fell more than 5 percent.

In exchange for adding Apple to its lineup, China Mobile may demand that Apple help subsidize the cost of the iPhones. It might ask for a better cut of each iPhone sale. Or it could just ask for a more lax contract, in which it can reduce the prices of the phones. In the United States and some European markets, Apple has forbidden carriers from discounting the price of the iPhone.

“With every passing month, China Mobile is getting stronger and Apple is getting weaker,” said Tero Kuittinen, a mobile analyst for Alekstra. “We have a moment where all of the cards are in China Mobile’s hands.”

When the new iPhones, the 5C and 5S, are released on Sept. 20, they will be available through two other Chinese mobile carriers, China Unicom and China Telecom, which together have more than 400 million subscribers.

Apple said on its Web site that the iPhone 5C, the cheaper model, would start at 4,488 renminbi, or $733, without subsidies from mobile operators. The new flagship iPhone 5S will start at 5,288 renminbi, or $864. That price is more than one-third higher in China than the $550 unsubsidized cost for the iPhone 5S in the United States.

Apple products have always been more expensive in China than in the United States — even though iPhones are actually assembled in China. That is because iPhones sold in China are subject to a 17 percent value-added tax, while those that are exported can be sent abroad tax-free.

The cost in mainland China is also higher than it is in Hong Kong, where there is no value-added tax or sales tax. There, Apple announced a price of 4,688 Hong Kong dollars, or $604, for the iPhone 5C.

Yet even with that 17 percent factored in, Apple appears to be marking up the iPhone 5C substantially in China, potentially giving the company room to maneuver later. Chinese carriers do not generally subsidize the handset price for consumers, but they often discount their monthly bills. So the eventual cost to consumers has plenty of room to come down.

Some analysts said Apple might have announced a high initial price in China to justify eventual price cuts. If an agreement with China Mobile were to come soon, Apple could then reap a marketing benefit by cutting prices just as it gained access to a vast new consumer base.

Ben Bajarin, a technology analyst for Creative Strategies, a consulting firm, said it was possible that China Mobile could trim the cost of the iPhone 5C and use the device to lure customers into paying for more expensive smartphone plans.

“That’s the one thing the iPhone’s been remarkably good at,” he said, “is driving value to the premium data service.”

Eric Pfanner reported from Tokyo.

Eric Pfanner reported from Tokyo.

Article source: http://www.nytimes.com/2013/09/12/technology/the-surprise-in-apples-cheaper-iphone-in-china-its-expensive.html?partner=rss&emc=rss

Apple Is Set to Announce Two iPhones

At an event on Tuesday at its Cupertino, Calif., headquarters, the company is set to unveil for customers worldwide a new iPhone with a faster processor, along with another model that will be sold at a lower cost.

The company’s profit growth has slowed in response to a saturated handset market in America and parts of Europe. Many people already own a smartphone and are not upgrading to new devices as often as before.

A lower-cost smartphone could allow Apple to expand into overseas markets — especially China, where the iPhone has been highly desired among many consumers but is just out of reach because of its price.

“A cheaper model will open up the market significantly for Apple,” said Chetan Sharma, an independent telecom analyst who consults for phone carriers.

Apple declined to comment on the new products. But analysts expect the higher-priced model to be an improvement over the current iPhone, including a faster processor and better camera flash, as well as a fingerprint sensor for security.

The second iPhone is expected to be a cheaper version of the soon-to-be-outdated iPhone 5, coming in a variety of colors, with a plastic case instead of aluminum. Analysts expect the full price of the lower-cost iPhone to be $300 to $400, positioning it as a midtier product.

Apple has been enormously successful, with the iPhone driving most of its revenue. In the second quarter, the company took 53 percent of the profit in the global smartphone market, with Samsung Electronics, which uses Google Android software to run its smartphones, taking the rest, according to a survey by Canaccord Genuity, an investment bank.

But both Apple and Samsung face a common enemy: the tide of manufacturers that produce dirt-cheap Android phones. While they make all the profits, Apple and Samsung have seen their combined share of the worldwide smartphone market drop to 43 percent in the second quarter from 49 percent a year earlier. The makers of cheaper phones — including Huawei, Yulong and ZTE of China, and Micromax and Karbonn of India — are raking in sales in emerging markets where high-end smartphones are not popular.

“We’ve had several indications from the handset market that vendors are in real trouble,” said Tero Kuittinen, an analyst for Alekstra, a mobile diagnostics firm. “The biggest threat to all the companies seems to be the low-end Androids.”

In terms of sales, smartphones surpassed traditional flip phones this year. There are a few markets remaining where traditional cellphones are still outselling the smartphone, including India, Brazil and Russia. Data from Qualcomm suggests that Latin America, China and India are adding substantially higher numbers of smartphone subscriptions than North America, Japan, Korea and Europe.

China, with its huge population, is an attractive target for Apple. But Timothy D. Cook, Apple’s chief executive, said recently in a call with investors that the company was puzzled about why sales of its products were struggling in China. Sales there fell 4 percent in the second quarter compared with the same quarter last year. And Apple’s sales in Hong Kong were down about 20 percent.

A cheaper iPhone could help it gain traction in China, depending on its cost.

Analysts said the introduction of the cheaper iPhone would probably coincide with an expected partnership deal with China Mobile, which has about 700 million subscribers — about seven times as many as Verizon Wireless. Capturing even a small percentage of China Mobile customers would translate to tens of millions more iPhone sales.

Apple already sells its phones in China through China Telecom, a major network operator, but it slipped into sixth place among smartphone makers there in the second quarter, with a share of only 4.8 percent, according to Canalys, a research firm. Over all, China is the largest smartphone market in the world, accounting for one-third of worldwide shipments of smartphones in the second quarter; the United States is in second place, accounting for about 14 percent of shipments in the same period, according to Canalys.

Despite Apple’s efforts to keep its plans secret, clues about the new iPhones leaked out. China Telecom briefly posted a message last week on a blog platform soliciting early orders for the new devices. It identified the high-end model as the iPhone 5S, and the lower-cost one as the iPhone 5C. The post was later removed. A spokesman for China Telecom declined to comment, citing nondisclosure agreements.

In Japan, where Apple is much stronger but faces a renewed challenge from domestic smartphone makers like Sony, the company has struck a deal to sell the iPhone with the country’s biggest mobile phone carrier, NTT Docomo, two people briefed on the situation said Friday. Docomo has 60 million customers, but it has been losing market share to Japan’s other two main mobile operators, SoftBank and KDDI, which operates under the brand name au. Both have been marketing Apple’s phones aggressively, giving Apple a 40 percent share of smartphone sales in the first quarter, according to IDC, a research firm.

Historically, so that it can protect the quality of its products as well as profit margins, Apple has refused to make cheaper products just to get more customers. Therefore, a lower-cost iPhone would most likely be positioned as a midtier product, similar to the approach Apple took with the iPad Mini. At $330, the iPad Mini is cheaper than the bigger, $500 iPad, but not as affordable as the smaller Android tablets offered by Google and Amazon, which cost from $160 to $230.

Realistically, a lower-cost iPhone will be $300 to $400 at full price, Mr. Kuittinen, the Alekstra analyst, said, significantly less than the current iPhone, which costs $650. Overseas, many phone carriers charge full price because they do not subsidize the upfront cost of a smartphone the way carriers do in the United States. And while a lower-cost iPhone would drive up Apple’s revenue, it would probably not be a blockbuster hit in economically disadvantaged markets, Mr. Kuittinen said.

“Nobody is saying Apple should have a $130 iPhone,” he said, “but if they price this iPhone 5C at $400 or above, it’s just not going to be effective in countries like India, China or even Brazil.”

Still, even if the price is fairly high, a cheaper iPhone should appeal to a subset of people in developing countries who flaunt gadgets as status symbols, like jewelry. People who were on the fence about buying an iPhone might pay a little extra just to be able to show off, Mr. Sharma, the telecom analyst, said. “Consumers are willing to shell out money to own a brand,” he said. “I think a $300 price gives them a chance to own it.”

Eric Pfanner contributed reporting from Tokyo.

Article source: http://www.nytimes.com/2013/09/09/technology/apple-is-set-to-announce-two-iphones.html?partner=rss&emc=rss