iPhone hardball and soft sell in China
Apple airs its first Chinese-language ads as reports of retailer intimidation emerge
Supplementing print advertisements like the one at right, the first Apple-produced iPhone ads appeared on Chinese TV over the weekend.
They come on the heels of the device's somewhat sluggish start last month in the world's largest mobile phone market (more than 720 million subscribers).
Apple's (AAPL) local carrier, China Unicom (CHU), reported signing up only 5,000 new subscribers in the iPhone's first four days of sale, a result Western analysts viewed as disappointing.
In addition to the several reasons put forward — e.g., high prices, lack of Wi-Fi, a market saturated with knock-off and black-market phones — iPhonAsia's Dan Butterfield has added another: strong-arm tactics on the part of China Unicom's chief rival, China Mobile (CHL).
According to Butterfield, some of the country's most important mobile phone distributors are not yet selling the iPhone despite signed agreements with China Unicom. Reason: threatening letters from China Mobile warning them not to.
"The precise wording of these letters is unknown," writes Butterfield, "but this is more than just a suggestion." He then quotes — in translation — an article in sina.com:
"Many cell phone distributors received formal notification that 'Selling iPhones is not recommended,' or 'Selling iPhones is not allowed or China Mobile will fine you or stop cooperation with you.' "
Tactics like this, as 9to5Mac's Seth Weintraub puts it, "make Verizon and AT&T's little sissy war seem silly."
Below the fold: An iPhone ad with a Chinese accent and Chinese apps.
Does AT&T turn into a pumpkin in June?
Its Cinderella contract with Apple for the iPhone runs out in seven months, says one analyst
Brian Marshall. Image: Bloomberg
Broadpoint AmTech's Brian Marshall, who has replaced Piper Jaffray's Gene Munster as the most bullish of the mainstream Apple analysts, made several assertions of fact in an Bloomberg TV interview Friday that — if true — struck me as newsworthy. Chief among them:
- The contract that gives AT&T (T) exclusive access in the U.S. to Apple's (AAPL) iPhone expires in June 2010.
- Apple is now getting a $450 subsidy from AT&T for each iPhone it sells; after June, that subsidy will be reduced to $300 for all carriers, domestic and international.
- The 4% of AT&T subscribers who use the iPhone consume roughly 40% of the network's bandwidth.
Here and in a research note issued last late month, Marshall has been lobbying heavily for Apple to start selling the iPhone through Verizon (VZ). It turns out he may have personal reasons for doing so. He told Bloomberg's Pimm Fox that whenever he travels to New York or San Francisco with his iPhone he gets dropped calls "all the time."
"A very frustrating experience," he said, "but I'm not going to move away because Apple has their hooks into me"
You can hear all this, plus what Marshall has to say about the Chinese iPhone market, Windows 7's effect on Mac sales and Apple's 2010 earnings, in the interview posted below the fold.
UPDATE: Financial Alchemist's Turley Muller takes issue virtually everything Marshall says in this interview. See here.
[Follow Philip Elmer-DeWitt on Twitter @philiped]
Inside Beijing's iPhone black market
iPhoneAsia's Dan Butterfield takes readers on a tour of China's electronics jungle
A bogus Apple reseller in China. Photo: Dan Butterfield
"There’s no room for the meek," writes Dan Butterfield in a dispatch from Beijing's Zhongguancun-region electronics malls.
"Picture four or five Manhattan-sized Macy’s department stores filled to the rafters with electronics outlets and sundry other goods. Untold thousands of shoppers fill these stores each day. From the moment you walk in the door (if you look like money or are a tourist) you’re besieged by barkers attempting to coax you over to their store space. They are not subtle and will do anything to get your attention and ultimately your yuan renminbi. No judgment here, this is a game of survival in an electronics jungle."
Butterfield was on a mission to buy a Chinese iPhone. Accompanied by a hired guide/interpreter named Jennifer, he visited a wide variety of retail outlets, from the company's own Beijing Apple Store to some of the hundreds of bogus "Authorised Resellers," displaying phony Apple (AAPL) logos.
It's a retailing adventure filled with lessons any American electronics manufacturer hoping to break into the Chinese market.
You can read the full story here. A sample below the fold:
China iPhone launch a 'disappointment'
Analysts adjust their Chinese iPhone estimates following sales that one describes as "soft"
iPhone buyers in Guangzhou. Photo: iPhonAsia
Following press reports that China Unicom (CHU) only managed to sign up 5,000 new iPhone subscribers after four days of sales, Piper Jaffray's Gene Munster and Barclays Capital's Ben Reitzes each issued notes to clients Tuesday that tried to put a positive spin on the news.
"The China launch is a disappointment," Munster acknowledged. But he added that it reminded him of the launch of the original iPhone in June 2007, when reports that AT&T had activated only 146,000 iPhones in two days caused "unfounded concerns among investors" about the device's long-term potential.
Photo: Chinese queue up for iPhones
Despite high prices and lack of Wi-Fi, hundreds line up in Beijing to buy Apple's smartphone
iPhone buyers in Beijing. Photo: it.chinanews.com.cn
Nobody camped out overnight and the lines didn't stretch for whole city blocks, but an hour before the iPhone was set to make its official debut in China, reporters in Beijing counted nearly 300 customers queued up to buy it, according to ChinaNews.com.
The first sale was scheduled to be made at 6:30 p.m. Friday Beijing time following an elaborate launch ceremony at the "The Place," China Unicom's flagship store. Apple vice president Greg Joswiak spoke at the event, calling it "an extraordinary day."
The line at Apple's all-glass store in the Village at Sanlitun retail development was smaller, but at one point grew to at least 150 customers long, according to a late update on MobileCrunch. Customers at the Sanlitun store told reporters they hoped to get better service by buying directly from Apple.
Although China is the world's largest cellphone market with more than 700 million subscribers, Western press reports have suggested that China Unicom (CHU) might have trouble attracting buyers under the terms of the deal it struck with Apple (AAPL). Due to restrictions imposed by the Chinese government, the iPhones being sold Friday won't have a Wi-Fi receiver.
They also cost from 4,999 yuan ($730) to 6,999 yuan ($1,025) for a 32 gig iPhone 3GS without a service plan. That is 20% more than the 5,700 yuan ($835) street merchants are changing for an unlocked gray-market 32 gig iPhone 3GS with Wi-Fi. China Unicom's iPhones are much cheaper — in some cases, free — when purchased with a long-term service contract. Â More
Broader distribution could double iPhone sales in 2010 – Morgan Stanley
Source: Morgan Stanley
One of the biggest drivers of Apple's (AAPL) growth — and the company's share price — over the next two years will be the expiration of the exclusivity deals Steve Jobs cut with carriers during the iPhone's first two years.
That's the conclusion of a surprisingly bullish report issued Friday by Morgan Stanley's Kathryn Huberty, long considered a leading Apple bear.
"We expect Apple to broaden iPhone carrier distribution over the next two years and believe this opportunity is under-appreciated by the investment community," she wrote. "This total opportunity is substantial — it adds up to an incremental 20.3M iPhone units and $3.76 in adjusted EPS, 100% and 41% of iPhone units and adjusted EPS respectively."
Her "case study" is France, where the iPhone's market share grew 136% after the government ended Apple's exclusive deal with Orange. She expects similar — if not quite as dramatic — increases as Apple, in addition to opening new markets in China and Korea, switches to multi-carrier agreements in its largest markets. (The U.K. has already gone multi-carrier.)
The U.S. is the biggest prize in this respect, but she doesn't expect Apple to cut a deal with Verizon before that carrier's so-called 4G rollout is complete, some time in 2011.
Huberty offers three scenarios for investors — bullish, base and bearish — represented in the chart above. Using her base scenario she expects Apple to sell 41.7 million iPhones in calendar year 2010. She has raised her revenue estimate for 2010 to $45.3 billion from $38.2 billion and her estimated EPS to $10.50 — 13% above the Street's consensus.
China's mysterious iPhone plans – update
[UPDATE: Dan Butterfield of iPhonAsia.com has slogged through the Mandarin in the press release and clarified some issues. See below.]
After a series of leaks last week to the Chinese business press — including Xinhua, the Communist government's official news agency — China Unicom (CHU) on Monday finally released some hard news about when and for how much it plans to begin selling Apple's (AAPL) iPhone in China
But not much news.
"When" is in October — which could be as early as Thursday or as late as 33 days from now.
"How much" is something of a mystery. The official word is around 5,000 yuan ($732.20) — considerably higher than the prices that were being tossed around last week (those ranged from 1,999 to 2,999 yuan).
But the carrier did not specify how much iPhone (8 GB? 16 GB? 32 GB?) 5,000 yuan might buy.
And it offered some details — but not quite enough — about the service plans that will accompany those iPhones and reduce their initial sticker price.
Chinese iPhones to start at $300, $18.45/mos. – update
[UPDATE: On Sept. 28, China Unicom announced an iPhone price point more than twice as high as the one in this press report. See here.]
iPhones in China will be relatively expensive, but monthly charges will be among the lowest in the world.
So says the Xinhua News Agency, the official press service of the Chinese Communist government, quoting an unnamed "insider" at China Unicom (CHU).
According the Xinhua report published early Friday, China's No. 2 carrier will roll out the iPhone shortly after the Oct. 1-8 National Day holiday in four models: 3G 8GB, 3G 16GB, 3GS 16GB, and 3GS 32GB.
The entry-level version, the 8GB iPhone 3G, will cost 2,075 yuan ($303) according to this report — more than three times its U.S. retail price ($99).
But the iPhones in China will be bundled with two-year service packages that are considerably cheaper than AT&T's (T). According to Xinhua, the lowest-price service package will cost 126 yuan per month, about $18.45. (AT&T charges its U.S. iPhone customers a minimum of $39.99/mos. for voice service plus a mandatory $30/mos. for data.)
Total cost for China Unicom customers over two years: $746. Total cost for AT&T customers: $1,779.
These prices are slightly different than those quoted by China Business Times earlier this week. According to that report, China Unicom had set an "internal launch date" of Oct. 15 for two models: an 8 GB iPhone 3G selling for 1,999 yuan ($293) and a 16 GB iPhone 3G for 2,999 yuan ($439). Both models were said to be offered with 2 year contracts starting at 186 yuan ($27) a month.
China Unicom announced late last month that it had struck a deal with Apple (AAPL) to carry the iPhone in China, beating out giant China Mobile (CHL). China Unicom has 140 million subscribers; China Mobile has nearly three times that many.
How many iPhones will Apple sell in China?
Graphic: iPhonAsia
It's tempting to multiply China's 700 million mobile phone users by a percentage pulled out of a hat, and now that China Unicom has announced its deal with Apple (AAPL), everybody seems to be doing it.
Result: Published estimates of how many iPhones Apple will sell in China next year that range from a low of 1 million to a high of 14 million. Here are the numbers we've seen:
- UBS analyst Maynard Um: 1 million in fiscal 2010
- Sanford Bernstein's Toni Sacconaghi: 2.9 million by end of 2011
- Standard & Poor’s Clyde Montevirgen: 4 million in calendar 2010
- Susquehana Financial's Jeffrey Fidicaro: 2 million to 5 million
- Broadpoint AmTech's Brian Marshall: 5 million to 7 million in 2010
- iPhonAsia's Dan Butterfield: 14 million in the first year of sales
Sacconaghi: How Apple sells 50 million iPhones in 2011
Apple Inc.
Piper Jaffray's Gene Munster — an Apple optimist — took a lot of heat when he predicted two years ago that Apple (AAPL) would sell 45 million iPhones in 2009. Unfortunately for him, the deal he expected Apple to strike in China still hasn't materialized, and he's since cut his 2009 expectations back to 25 million.
Now comes Bernstein Research's Toni Sacconaghi — usually considered an Apple pessimist — with a report that has Apple selling at least 50 million iPhones a year by 2011, up from the 20 million he's modeling for this year.
How does Sacconaghi expect Apple to get from 20 million to 50 million?
In three steps:
