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Defying Growth Concerns, iPhone Sales Soar in China

Feng Li | Getty Images

Apple has sold more than two million iPhone 5 smartphones in China in the first weekend since the phone's launch on Friday, breaking a record for the tech giant even as concerns surfaced about the company's outlook and the falling stock price.

"The extremely strong first weekend justifies that year-over-year growth is on track," said Ben Bajarin, Principal Analyst of Creative Strategies.

At the launch last Friday, the lack of crowds raised speculation that enthusiasm over Apple products had cooled in China, the company's largest market outside the United States. This was partly because Apple had instituted an online reservation system allowing customers to book appointment times, in a bid to prevent a repeat of the violence seen last year during the launch of iPhone 4S in January, where massive crowds who queued overnight for the phone turned acrimonious after being turned away.

(Read More: Apple's iPhone 5 Takes on Cheaper Rivals in China)

Apple also allowed customers this time around to buy up to five iPhone 5 handsets after booking appointments online. This compares to the launch of the iPhone 4s nearly a year ago, when scalpers had hired migrant workers to stand in line throughout the night to buy the maximum of two phones each. Others placed orders with Chinese cellphone carriers China Telecom and China Unicom.

"The emphasis on hordes [outside Apple's stores] is overblown not only in China, but elsewhere," Bajarin said. "Apple is looking to control that and is trying to incentivize customers to shift that habit."

Despite generating $23 billion in sales from the China market last fiscal year, the company faces tough competition in China. Not only have cheaper smartphones flooded the market, Apple's key competitor, Samsung Electronics, has also gained market share, a worrying sign for Apple, according to Glen Yeung of Citi Research. In a research report released over the weekend, Yeung said, "Pre-orders on China Unicom appear strong (300K vs. 200K for 4s) but only good in Taiwan (350K vs. 380K). But when also considering strength at Samsung is still evident from our supply chain checks, we suspect competition is improving, diminishing the hype around the iPhone 5." Yeung downgraded the shares of Apple from "neutral" to "buy."

Most tech analysts believe Apple needs to seal a deal with the country's largest cellphone carrier, China Mobile, to further its penetration in one of the biggest smartphone markets in the world. China Mobile dominates with over 700 million users.

At the Apple store in Beijing's popular shopping district Wangfujing, one customer believes Apple adapts well to Chinese consumers, including the quick integration of the Chinese language in its products. "A lot of my friends have bought the phone for the Siri function as they think it's quite innovative," he said. The iPhone's voice activated assistant Siri now speaks Chinese.

Additional reporting by Juliana Yeh

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