Sales in Japan (July). Source: Electronista

The iPhone, which has had a tough time competing in the Japanese market, finally broke through in July with the launch of the iPhone 3GS.

According to a report in Electronista, market data from Gfk Japan shows the 32 GB iPhone in the No. 1 spot for July, ahead of Japanese-made phones from Sharp, Panasonic (PC), NEC, Casio and Sony Ericsson (a Japanese/Swedish joint venture).

The 16 GB model came in at No. 9, ahead of the Sharp SH001.

An earlier report from the market research company BCN showing the two iPhone models occupying the No. 1 and No. 2 spots for the week of June 22 to 28 was discounted because that was the week Apple (AAPL) launched the 3GS in Japan. (See here.)

That the 32 GB iPhone ended the month of July in first place is harder to dismiss as a transient, opening day phenomenon.

Gauging the iPhone's popularity in Japan is not easy.

Just ask Brian X. Chen. He wrote a piece for Wired.com last April called Why the Japanese Hate the iPhone suggesting that despite the long lines that greeted the iPhone 3G last summer, the device was a big flop in Japan.

"Apple’s iPhone has wowed most of the globe," he wrote. "But not Japan, where the handset is selling so poorly it’s being offered for free."

Chen had to issue an apology to readers and two major revisions after his piece was torn apart in AppleInsider by Daniel Eran Dilger, writing under the byline Prince McLean, for getting initial sales estimates wrong and badly misquoting a couple key sources. But neither Dilger nor Chen had a good handle on how the iPhone was actually selling.

Which is why there was some interest this week in a survey of 2,300 Japanese retail stores conducted by the market research company BCN, reported by nikkei.net and picked up Friday by the English language TG Daily.

According to this survey, cellphone sales are plummeting in Japan but sales of smartphones have grown 80% in the past year, with Apple (AAPL) clearly in the lead.

The survey listed the top 10 bestselling smartphones cellphones in Japan. Heading the list at No. 1 was the 32GB iPhone 3GS. Second in line was the 16 GB model.

According to TG Daily, Apple has sold 1 million iPhones since July 2008 through Softbank, its exclusive Japanese carrier. But take that number with a grain of salt; it sounds suspiciously like the initial sales estimate that got Brian Chen in so much trouble last April.

No. 3 in the BCN survey is the NTT DoCoMo Aquos SH-04A, designed by Sharp. Research in Motion's (RIMM) BlackBerry Bold came in No. 6. Rounding out the top 10 list were four smartphones made by HTC.

UPDATE: On Sunday, Asiajin's Akky Akimoto published an analysis of the survey that provides more detail and context — and corrects several errors in the initial report.

The BCN ranking turns out to be a weekly top 10 list of bestselling cellphones (not just smartphones) for the June 22 to 28 — the week the iPhone 3GS went on sale in Japan — and it was the new iPhones, not the old, that were the Nos. 1 and 2 bestsellers in Japan that week. Curiously, the new iPhones also appeared on a BCN survey the week before they actually went on sale, coming in at No. 174 (32GB) and No. 189 (16GB), respectively.

You can see the original BCN list in Japanese here.

Photo courtesy of Information Architects.

The price of an iPhone in Japan can't get much lower than this.

Starting Friday, Softbank Mobile, the exclusive carrier of Apple's (AAPL) smartphone in Japan, will give anyone who signs a two-year contract a free 8GB iPhone 3G. If customers prefer the 16GB model, that will cost them $118 (reduced from $350).

Writing for CrunchGear, Serkan Toto reports that SoftBank Mobile’s data plan is also being discounted from $62 to $45.60 per month for both new and existing subscribers, a move he attributes to weak iPhone sales in Japan.

[Reader Kidong Yun points out that even at the reduced data rates, Japanese customers still pay nearly $150 a month for iPhone service, roughly double what users pay in the United States.]

The promotion is scheduled to end in May. It follows a data plan price cut in August — less than a month after the iPhone's Japanese debut.

Toto, a marketing consultant based in Tokyo, had predicted that Apple might have trouble getting traction in Japan's highly competitive cell phone market. In June, he posted 10 reasons why Japan will hate the iPhone (or maybe not). To get a feel for how the iPhone is perceived in Japan, we re-post them below the fold:

1. No One-Seg digital TV tuner

2. No Felica (e-wallet) function

3. Weak camera

4. Only one panel color available

5. Display of cute emoticons, emoji, is difficult

6. Japanese cell phone contracts are long-term (2 years standard, almost no pre-paid) and expensive to terminate

6. A lot of Japanese already own an iPod Touch (launched in October 2007)

7. Japanese women with long fingernails will not buy it (and there are a lot of them)

8. High-school kids use cell phones mainly for emails using one thumb, a dialpad and a jog dial (ideal for Japanese character input)

9. Softbank will probably charge a lot of Yen for the handset itself, accessories, data plans etc.

10. Japan is the toughest cell phone market in the world

(high level of technical sophistication, critical customers, high innovation rate etc. ) (link)

Japan continues to be "our most challenging major market," Apple CFO Peter Oppenheimer told analysts last month during the company's fiscal fourth quarter earnings conference call.

That may be, but one of the numbers that jumps out of the Form 10-K that the company filed with the SEC on Wednesday is 39% — the percentage Apple's net sales grew in Japan last year.

What makes that number remarkable is that it follows an 11% drop in net sales the year before.

Why the turnaround? According to the 10-K report, it was driven by sales of iPods, iMacs, MacBooks and "strong sales from the iTunes Store." The report singles out Mac net sales and unit sales, which grew 42% and 20%, respectively.

Apple (AAPL) attributes the declines between 2006 and 2007 to general shrinkage in Japan's consumer PC market and lower average selling prices of iPods.

The MacBook and MacBook Air contributed to the increase in net sales in fiscal 2008, as did strong demand for the iPod touch and iPod nanos at higher average selling prices.

Here are the numbers Apple provides:

The report does not mention sales of the iPhone in Japan, which after the initial excitement this summer are said to have slowed. See here.

According to the 10-K, "The company is continuing to evaluate ways to improve the future results of its Japanese segment."

In a break with its pattern of partnering with the largest provider in every international market it enters, Apple (AAPL) has cut an iPhone deal with Tokyo-based Softbank (SFT.F), Japan's No. 3 wireless provider with 18.77 million subscribers. The news came Wednesday in a Softbank press release that's even more terse than usual:

SOFTBANK MOBILE Corp. today announced it has signed an agreement with Apple® to bring the iPhone™ to Japan later this year. (link)

Meanwhile in Spain, Telefonica (TEF) seems to have got over whatever last-minute jitters caused it to pull Monday's press release (see here). On Wednesday the telecommunications giant announced once and for all that it has agreed to carry the iPhone in Spain through its Movistar subsidiary.

Telefonica is Spain's No. 1 carrier — by a long shot — with 23 million mobile subscribers, and it already carries the iPhone in the United Kingdom through its O2 subsidiary.

The Softbank deal is more of a surprise. Early betting had favored NTT DoCoMo (DCM), Japan’s predominant mobile phone carrier and one of the pioneers of 3G technology (see here). That door is not necessarily closed, however. "If there's still a possibility of releasing iPhone from DoCoMo, we would consider it," an NTT DoCoMo spokesman told The Wall Street Journal. "Though we cannot comment on whether we have specific negotiation plans with Apple," (link).

These two announcements bring the iPhone country count to 70, according to the list maintained by applinvestors.

With less than three weeks to go before Steve Jobs' June 9 keynote address, Apple may be close to a deal that would add two of Asia's hottest cellphone carriers to its growing list of international partners.

The Telecoms Korea news service reported late last week that Apple (AAPL) is planning a special joint release of the next-generation iPhone with two carriers whose names are synonymous with 3G: Japan's NTT DoCoMo and Korea Telecom Freetel. (link, paid subscription).

NTT DoCoMo (DCM), with more than 50 million subscribers, is Japan's predominant mobile phone carrier. It pioneered so-called third-generation cell phone technology with the 2001 launch of FOMA (Freedom of Mobile Multimedia Access), the world's first W-CDMA 3G service.

KTF, in which NTT owns a minority stake, adopted DoCoMo's 3G technology in 2004. It has 12 million subscribers in South Korea and operations in several other Asian countries, including India, Indonesia and China.

For a U.S. firm to bring advanced mobile technology to Japan and Korea has a coals-to-Newcastle feel. These are two of the most cell-phone savvy countries in the world, where features like multimedia messaging and "wave to pay" services are standard fare.

If Apple can conclude the deal before June 9, that would leave China as the last big Asian market without an authorized iPhone carrier.

Source: AppleInsider.

Japan has ordered an investigation of the first generation iPod nano for possible defects after one started emitting sparks while being charged. According to wire service reports, the problem surfaced in January in Kanagawa Prefecture southwest of Tokyo, and Apple (AAPL) reported it to the government in March.

An official at Japan's ministry of trade and economy said a defect is suspected in the lithium-ion battery in the iPod Nano, model number MA099J/A, according to the AP.

Battery fires are rare in iPods, but not unheard of. A search of Apple's discussion boards turned up a similar report filed on Feb. 20, 2008 by a user named Phil under the heading "My iPOD nano Exploded" (link). It reads in full:

Is there something wrong with the battery they put on the first gen ipod nano. mine just got blown to pieces. I was just charging it on my Laptop then it suddenly sparks and it caught fire. even the clicking wheel got melted. and the back of the ipod split open.

am i the first to experience this flaw! im so disappointed with that.

What should i do?

if you wanna see the pic go to – http://www.flickr.com/photos/23960698@N02/

The photographs show a badly charred black iPod nano, model No. A1137.

Lithium ion batteries have caught fire in Apple notebook computers, as well as laptops made by Sony (SNE), Dell (DELL), Lenovo and other manufacturers.

In the iPod line, only the nano seems to be having similar problems. In October an Atlanta airport worker claimed his iPod "nana" caught fire in his pocket, although TV reports of "chest-high flames" don't seem credible. (link) Last April, an Australian reported in an Engadget forum that his nano exploded with a force that sent it flying to the floor, where it sparked and smoked until he unplugged it. (link)

There are no reports of other iPod models catching fire in Apple's discussion boards.

Apple introduced the first generation iPod nano in Sept. 2005 and sold its first million in 17 days. It was discontinued in Sept. 2006.

It's not clear why the problems are surfacing now, or why Apple waited nearly two months to report the Japanese incident to the government, as required by law. Japan's ministry of trade and economy has "strongly warned" Apple and instructed it to investigate the cause.

Citing "people familiar with the situation," the Wall Street Journal reported Tuesday that Apple (AAPL) CEO Steve Jobs recently met with NTT DoCoMo president Masao Nakamura to talk about bringing the iPhone to Japan. (link; subscription required)

Japan's No. 1 mobile operator would seem a logical choice to carry the iPhone except for one thing: as Engadget notes, DoCoMo doesn't run a GSM/EDGE network. Japanese consumers hoping for an iPhone would have to wait for the 3G model, not due out before mid-2008.

Demand for the iPhone in Japan is expected to be high. According to the Journal, its 100 million mobile-phone users buy new models every two years. Apple's products are already popular there. The iPod and iTunes have dominated Japan's MP3 market since 2005 (see here). Mac sales in Japan have grown slowly in recent years, where smaller laptops are preferred, but according to several reports (see for example here), Leopard is selling rapidly. The thin Macs many expect to be unveiled at MacWorld should do well in Japan.

Apple is also reported to be talking to Japan's No. 3 carrier, Softbank, about carrying the iPhone. Although Apple's revenue-sharing demands are said to be, as usual, a sticking point in negotiations, the Journal's source doesn't expect Apple to have much difficulty coming to an agreement with one operator or another.