The chairman of China Unicom finally has some sales figures to report

iPhone buyers in Guangzhou. Photo: iPhonAsia

The numbers coming out of China since Apple (AAPL) launched the iPhone in the world's largest cell phone market have been dismal.

China Unicom (CHU) said it signed up 5,000 iPhone subscribers in the first weekend — a number widely reported as total sales. This was followed by reports that only five iPhones had been sold through a new website dedicated to online sales. Then on Wednesday Marbridge Consulting reported that in 40 days, China Unicom had sold only 10,000 iPhones — a number, that if true, would be pretty unimpressive in a country that boasts more than 720 million mobile phones.

Happily for Apple, it wasn't true. iPhonAsia's Dan Butterfield did a follow-up and discovered that a digit had been dropped in translation. The correct figure, according to China Unicom chairman Chang Xiaobing, who spoke to the media in Hong Kong Tuesday, is 100,000 iPhones in 40 days.

In that interview Chang castigated the press for focusing on the contract-free price of the iPhone in China ($1,033 for a 32G iPhone 3GS), rather than the subsidized prices under eight different monthly plans, four of which bring the sticker price down to $0.

And although Chang described reports that China Unicom had contracted with Apple to buy 5 million iPhones over five years as "not entirely accurate," he added, according to Butterfield, that the company is rethinking its marketing strategy and could end up selling more that 5 million iPhones.

Butterfield points out that Chang expressed similar sentiments when he talked about iPhone sales in a Nov. 16 interview on Bloomberg TV Asia Pacific. The video is copied below. In an earlier post, Butterfield described a Chinese advertising campaign that began in earnest shortly after that interview.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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.

See also:

• China iPhone launch a 'disappointment'
• Inside Beijing's iPhone black market
• Photo: Chinese queue up for iPhones

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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]

See also:

• Rumors: A Verizon iPhone in 2010
• Apple earnings: How the analysts got it so wrong

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:

No sooner had Jennifer and I walked in the door of the Hypermart and barkers were into their shtick, shouting in Chinglish (for my benefit) "You wan computer? … buy cheap here.” Jennifer uttered one word “iPhone” and instantly a fleet-footed barker in blue blazer and tie (the standard uniform throughout the malls) pulled us aside and beckoned us to follow. We were ushered down a hallway to a bank of elevators and up to the seventh floor, then down a corridor (“where the heck are we going,” I thought) and into a private room.

It was not so private. There were 50 or so shoppers and at least a dozen blue-blazer salesmen engaged in enterprise. Our barker guide sat us down at a table and within moments another salesman appeared with an official looking iPhone box. The pitch was on. Jennifer asked my prearranged list of questions (in Mandarin of course) while I held and closely inspected the iPhone. It was real as best as I could tell and after navigating the UI it looked/functioned as expected. This was a gen one 8GB 2G iPhone and it had seen better days. No plastic covering on the screen and the casing had several scratches.

During the next few hours, Jennifer and I sat through eight or nine iPhone demos … all of them were jail-broken/hacked or unlocked iPhones. All but one of the iPhones appeared to be real (only one clear Shanzhai iClone) and I inspected them closely. There were several that were brand new 16GB and 32GB iPhone 3GS…

The hundreds of phony Apple “Authorised” stores (could be 100+ locations in Beijing alone) no doubt fool many shoppers. The Macs, iPods and iPhones on display look amazingly real. And I suspect that many are in fact the real McCoy. Yet buyer beware! I learned from some Apple savvy expats in Beijing that you can only tell you’ve got a bandit (Shanzhai ji) when you take your purchase home and discover the erratic (crappy) non-Apple like UI and inability to synch to iTunes.

You can read more of Dan Butterfield's China dispatches here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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.

Doing some quick back-of-the-envelope calculations, Munster estimates that 1,500 iPhones per day works out to 550,000 per year — considerably less than the 1 to 2 million iPhones he had expected Apple (AAPL) to ship to China in 2010. But he anticipates that the cost of unsubsidized iPhones in China (currently about $800) will come down, and he's sticking with his prediction that Apple will sell 9.2 million iPhones worldwide in the current quarter and 36 million in calendar 2010.

Similarly, Barclays' Reitzes expressed confidence in his report that with additional carriers, demand for the iPhone in China could "ramp up to multiple millions" over time.

Meanwhile, iPhonAsia's Dan Butterfield, sampling Chinese language press reports from the 30 provinces where the iPhone went on sale last weekend, suggests that the launch might not have been the bust it's being portrayed as.

"Despite western media predictions that the iPhone launch in China would be met with a yawn," he writes,  "there were many enthusiastic buyers at iPhone retailers. The Suning store at Nanjing Commerce Plaza had some 1,000 visitors on launch day."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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.  

Reporters crowd China Unicom chairman Chang Xiaobing. Photo: ccidnet.com

Earlier this week, iPhonAsia's Dan Butterfield reported that China Unicom is offering an amnesty program to entice the estimated 1.5 to 2 million gray-market iPhones already in China to sign up for its services. Under the "upgrade to 3G" program, owners of older iPhones can sign a contract and pop in a Unicom 3G sim card to take advantage of the carrier's WCDMA speeds and a variety of new 3G services

At the ceremony Friday, China Unicom officials announced that they now have more than 1 million iPhone 3G subscribers.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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.

[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.

There will be eight plans in all, ranging in price from 126 yuan ($18.50) to 886 ($130) yuan per month. They will include 450MB to 4GB of mobile data access, 120 to 880 SMS messages, 15 to 95 MMS messages, and between 320 to 3,000 minutes of talk time. A rate card would have been helpful.

It's not clear what China Unicom hopes to gain by this mix of vagueness and specificity. Perhaps it's to keep its competitors — China Mobile (CHL) and China Telecom (CHA) — off balance. Perhaps it's to encourage customers to choose longer-term service plans when the final — and presumably heavily subsidized — iPhone prices are revealed.

Or perhaps they've learned a trick or two from Steve Jobs, a master of the art of managing the flow of information in order to keep his company in the headlines.

UPDATE: According to iPhonAsia.com's Dan Butterfield, who has been following the story closely and can read Mandarin:

• The 5,000 yuan ($732) price is for a "no contract" iPhone (unclear whether that's for 16 GB or 32 GB)
• Subsidies for customers who go "on contract" range from 893 yuan to 4,253 ($130.56 to $621.83).
• There is even a "free" 8GB iPhone 3G plan for customers who sign up for a two-year contract with the maximum messages, minutes and data plan.
• He describes 10 different service plans, ranging from the 66 yuan ($9.67) ultra-cheap student package to a high-end package that costs 886 yuan ($129.54) per month.

See here for Butterfield's complete report.

[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.