Apple's latest foray into China gets weak response
Apple has been counting on along-awaited agreement with China Mobile, the world's largest cellular operator, to reverse its fortunes in China. If the muted reception Friday, when customers were finally able to buy iPhones from China Mobile, is any indication, the companies may have to work harder to whip up enthusiasm.
Instead of the round-the-block lines that have greeted Apple product introductions in China and other countries in the past, only about a dozen customers showed up to buy iPhones at the opening of a store in Beijing — despite the presence of a special guest, the Apple chief executive, Timothy D. Cook.
Mr.Cook's trip to Beijing was a testament to the importance that Apple has attached to the introduction of iPhones on a mobile network with more than 750 million customers. The agreement to sell the iPhone 5S and 5C was announced in December, after years of negotiations.
Apple was once an iconic brand in China, where its phones have been sold for years by the second- and third-largest mobile operators, China Unicom and China Telecom. But it has lost ground to the market leader in smartphones, Samsung Electronics, and cut-price domestic rivals.
Its market share has fallen into the single digits.
In some ways, Apple's challenges echo those of other American brands in China, which gained loyal followings during the country's boom but have more recently been subject to intense scrutiny by the Chinese media, prompting consumers to give another look to alternatives.
"Apple used to be the must-have, aspirational brand for all wealthy and middle-class Chinese consumers," said Shaun Rein, the managing director of CMR, a market research firm, and the author of "The End of Cheap China." "But over the last year, there has been a real deterioration of the Apple brand."
The state-run CCTV has broadcast a series of exposés of supposed quality or ethics lapses by Western brands, including Apple. In one of the most recent examples,Walmart this month recalled donkey meat that it was selling at several outlets after it was found to have been tainted with fox meat.
Apple is just the latest of a number of American technology companies to fall on harder times in China. Google was once a leading search engine in China, but then lost ground to a local rival, Baidu. Motorola was once a power in mobile phones in China, but then lost ground to Nokia of Finland — which, in turn, yielded leadership to Apple, Samsung and others. More recently, Cisco Systems, the maker of telecommunications network equipment, said that sales in China had been hurt by disclosures of surveillance by the United States National Security Agency.
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Analysts say that Chinese consumers are likely to base their purchasing decisions more on the price and features of phones and calling plans. And Apple still has enthusiasts, including some of the consumers who visited the Beijing store on Friday.
"This is like manna from heaven!" said Xia Bingyi, a 26-year-old customer from the eastern Chinese city of Jinan. She was one of 10 registrants for an iPhone through China Mobile who won a trip to the Chinese capital to purchase an iPhone on the opening day of the company's offering.
Ms. Xia already owned an iPhone 4 she bought two years ago, but said she did not hesitate to sign up for a new iPhone 5S once China Mobile began offering the Apple product.
So far, China Mobile is being has been less aggressive on pricing than some analysts had expected. It is offering the unsubsidized, unlocked version of the iPhone 5S at 5,288 renminbi, or $874, the same price that Apple charges in its own stores in China. China Mobile customers can get the phone for free — but only if they commit to a two-year contract at 588 renminbi per month, or almost $100.
China Unicom and China Telecom have made only modest price cuts on their competing iPhone packages since China Mobile announced its Apple agreement in December.
"There won't be a subsidy war among the three operators because they have already learned that they need to control this," said Jun Zhang, an analyst at Wedge Partners, an equity research firm.
On Sina Weibo, a microblogging service, some users complained about the pricing of the iPhone 5S by China Mobile, saying they could get smuggled versions for less money.
"The model is the same," one contributor wrote on Weibo. "I want the cheaper one."
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Even before the deal with Apple, China Mobile said 45 million people were already using iPhones on its network, most of them acquired from Hong Kong or via other unofficial channels. This accounts for more than 60 percent of the iPhones in use in China, according to Craig Yu, research director at Kantar Worldpanel ComTech, a research firm.
Now, in addition to the agreement with Apple, China Mobile has another big advantage over its two rivals — the fast new network it is building, using so-called 4G technology. China Unicom and China Telecom are still relying on the slower, previous generation technology.
But this is a mixed blessing for Apple, because analysts say some China Mobile iPhone sales will come from customers switching from China Unicom or China Telecom. As a result, estimates of iPhone sales by China Mobile, which have ranged from less than 10 million annually to more than 30 million, might overstate the overall benefit to Apple.
An Apple spokeswoman, Carolyn Wu, said the company did not plan to report first-day sales figures.
Previously, China Mobile had reported more than one million advance orders for the phone via its website since the deal was announced.
But Mr. Zhang of Wedge Partners said such online registrations generally result infirm orders in only about one-third of cases, meaning Apple could expect around 400,000 sales.
Overall, including the effect of customers switching from rival networks, Mr. Zhang said he expected Apple to sell about one million more phones a month in China as a result of the deal, on top of the roughly three million it has been selling.
In a market of more than one billion mobile phone customers, those are modest figures. That may help explain why even Mr. Cook seemed to be looking as much to the future as to the present as he traveled to Beijing for the China Mobile introduction.
Analysts said that Apple could probably broaden its potential market in China by making phones with features that appeal more to Chinese consumers, like bigger screens. Handsets like the Samsung Note 3, which has a 5.7-inch screen, compared with the 4-inch screen of the Apple 5S and 5C, have been selling well in China.
In his appearance at the China Mobile store in Beijing, the Apple chief told shoppers and reporters that "today is just the beginning of China Mobile and Apple coming together to deliver the best experience in the world."
"We never talk about future things," Mr. Cook said. "We have great things we are working on but we want to keep them secret. That way you will be so much happier when you see it."
—By Eric Pfanner of The New York Times