Why Apple Could Finally Crack China Market With iPhone 5
For years now, Apple has been trying to rule the smartphone market in China. Its latest iPhone offering might just do the trick.
The breakthrough appears to be an imminent partnership with China Mobile , the country’s largest mobile service provider. Apple has been trying to sign a contract with China Mobile to sell its iPhones, but the tie-up has been held back due to incompatible technology.
The iPhone 5, however, has been built to support the frequency bands that China Mobile adopts for its homegrown 3G networks, paving the way for the deal to be inked by early 2013 — a development analysts say could double sales of iPhones in China.
According to HSBC, if China Mobile can convince its high-end users, or 4 percent of its total 683.1 million subscribers, to switch to the iPhone 5, that’s an additional 27.3 million smartphone sales for Apple . The bank estimates that there are currently about 22 million iPhone users in China.
“It's going to mean a significant increase of Apple sales into China,” Tucker Grinnan, the bank’s head of regional telecom research, said on CNBC Asia’s “Squawk Box” on Thursday, adding that the development represents a game-changer for Apple in China.
Apple currently has a 10 percent share of China’s smartphone market, after Samsung Electronics, which dominates with a 19 percent share. Apple lost significant share in recent months due to competitive offerings from local players like ZTE and Lenovo , according to research firm IDC.
Grinnan said Apple is on the right track taking a much more aggressive global rollout of its iPhone 5, which he describes as the “broadest launch of a new phone by Apple so far.”
“They're talking about reaching 100 carriers in 240 countries by the end of this year,” Grinnan said. "That's a much, much broader push. And countries like Hong Kong which in the past have not been in the first line of launch, are in this time around. So it does appear that Apple is significantly expanding the addressable base and China Mobile should be one of the top customers globally in the next year or two.”
Compatibility aside, the new iPhone offering also has features which appeal to the Chinese consumers, said Scott Sutherland, managing director of equity research at Wedbush Securities.
“What you get with the iPhone 5 are all these new features: Chinese language integration, social networking websites, Siri is going to be in Chinese, so again, they’re making a big focus on the software functionalities of this phone,” said Sutherland, which has a 12-month target of $885 for Apple’s stock.
While the addition of China Mobile to its carrier partners in China could have a "huge impact" on Apple's presence in China, according Melissa Chau, research manager at IDC Asia/Pacific, she believes the company's growth may be limited.
Existing users of Apple will likely convert to the iPhone 5, but the company will struggle to bring new customers on board, she said.
"If we are talking about new users, I think that’s where it gets a little bit tricky because for the new users, a lot of that market that is growing is actually in the lower-priced tiers," Chau said. "And with this device not coming in any cheaper than the (iPhone) 4s or 4, for that matter, it’s going to be hard for Apple to grow in that segment."
—By CNBC’s Li Anne Wong