Cheaper iPhone in 2012 could triple Apple's booming sales in China
In a research note released on Wednesday, investment bank Morgan Stanley reports that, among Chinese customers who are in the market for a 3G handset but hesitant to buy Apple's iPhone, 85% cite price as the key factor in their decision. Survey responses further suggest that, at the right price point, demand for the iPhone could increase by as much as 2.6x.
Morgan Stanley's AlphaWise market survey indicates that Chinese respondents already looking to buy a 3G phone are willing to pay an average maximum price of 2,716RMB ($425). But, those who said they were unlikely to buy an iPhone noted that 2,200RMB ($344) is the most they could afford. The firm's findings fall roughly in line with a mid-range 'sweet spot' of $350 that industry watchers believe would give Apple greater market penetration.
Apple does appear to have built up substantial brand value among Chinese consumers, as respondents not planning on buying a 3G phone said they would only pay a maximum of 1,631RMB ($253) for a 3G device.
Nearly 80% of respondents marked Apple as the leading smartphone brand in China, toppling the previous leader Nokia. Also, purchase intentions for the iPhone are a whopping 4.5 times its current market share. That's a noteworthy indicator that Apple still has plenty of room for growth in the world's most populous nation.
But, if Apple is to maintain sales momentum in China, it will need to release its new iPhone 4S there soon. According to the firm, the Cupertino, Calif., company's share of mobile phone purchases in the region fell from 12% to 7% last quarter, largely due to customers holding out for Apple's next-generation handset.
The survey, which draws from online interviews with 2,050 Chinese consumers, went on to show that accelerating 3G adoption is pushing the Chinese market toward phones that feature data-centric functionality, such as streaming videos and fast email access.
China saw an increase in interest for 3G-capable handsets in the second half of 2011, with 90% saying they were likely to buy a 3G phone and 91% opting for a smartphone as their next device, up from 87% and 88%, respectively, from the first half of the year. This upward trend is due in large part to current 2G users wanting to make 3G and smartphone upgrades, causing the firm to suggest that smartphones will move from a niche market into the mass market in China.
Despite the allure of 3G functionality, Chinese users stress that cost is still the deciding factor in purchasing a phone or upgrading their network. In the most recent survey, there was a noted shift in importance from service plan cost to device price after the two were nearly identical in the survey from the first half of 2011. 64% of respondents said they were unlikely to get 3G phones because of device price compared to 53% blaming service plan cost.
After bringing its focus to bear on the region, Apple has seen impressive growth in China. The Greater China area became the company's second largest market, behind only the U.S., in the third quarter of 2011. During a quarterly earnings call last week, executives also indicated that China is "the fastest growing region by far."
The iPhone maker's China sales were $4.5 billion in the September quarter, 16 percent of its total revenue. That's up from $3.8 billion in the June quarter and just $3 billion in all of fiscal 2010.
Apple's retail initiative in China is just taking, as it currently operates just five stores in two cities on the mainland and one in Hong Kong. The company said last year that it plans to open a total of 25 in the country in coming years.
CEO Tim Cook said earlier this year that he believes Apple is just "scratching the surface" of the Chinese market. Meanwhile, one analyst believes that the mobile market in China poses as much as a $70 billion opportunity for Apple.
15 Comments
It this supposed to mean they will be subsidized in China, or are we being told Apple will start making cheap plastic junk?
Can anyone even picture the keynote for this? "Now, or great engineers have made an even cheaper phone using the A3 chip. We think users will enjoy using this phone."
Really?
I thought they already had a lower priced phone. The 3GS.
It this supposed to mean they will be subsidized in China, or are we being told Apple will start making cheap plastic junk?
Can anyone even picture the keynote for this? "Now, or great engineers have made an even cheaper phone using the A3 chip. We think users will enjoy using this phone."
Really?
I thought they already had a lower priced phone. The 3GS.
Umm, no. We're being told that if Apple made their iPhone available for a cheaper price, they could have larger market share in China.
You're right, Apple already makes the 3GS, which I find, after a couple of weeks of use, is actually still a very capable smartphone. However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses.
Apple will eventually release a cheaper version of the iPhone 4 and probably be able to make it a lot cheaper than the current 3GS due to the economies of scale by sharing some the same parts with the iPhone 4S.
However, Apple doesn't make a CDMA version of the 3GS, which is what the largest phone carrier in China uses..
The largest carrier in China uses GSM(2G) which is why they have 10 million iPhones on the network. China's smallest carrier uses CDMA.
Ha ha. In the third world (where I grew up), people will always respond to a survey with 'cheaper price' as the number one reason. Even though there are other non-price ways to increase sales.
One thing that cross my mind is, can apple keep up with an ever increasing demand and if so what if the supply gets hit hard by some sort of factory failure that could delay supplies for lets say 3 to 4 weeks? Would apple lose its luster and would apple suffer in the eyes of perspective customers? Also how can one company supply the whole world. Lets say china and its 1 billion people, take a small percentage of those people and you have one huge supply nightmare on your hands. All this resting on one VP's shoulders? Wow.