Update: The Latest News on Apple in China

Apple (NASDAQ:AAPL) has been making headlines in recent days over issues pertaining to its role in the Chinese marketplace and manufacturing. Here’s the latest scoop on how the Apple is doing across the Pacific:

iPhone Loses Smartphone Market Share

While the smartphone market is booming in China, and Apple saw unprecedented revenue last quarter from the release of the iPhone 4S, its market share in China declined for the second quarter in a row. Part of the issue had to do with customers holding off on purchases until the release of the iPhone 4s, but perhaps a greater factor has been the rise in lower-price, higher-quality domestic competition. China is the world’s largest mobile phone market, with the number of subscribers expected to top 1 billion this coming year, naturally making the competition for customers especially fierce.

In the fourth quarter, Apple’s market share declined from 10.4 percent to 7.5 percent. Samsung took the top spot, unseating Nokia (NYSE:NOK), with a 24.3 percent share of the market, according to data from research firm Gartner. Nokia’s market share fell from 40 percent one year ago to less than 20 percent at the end of the fourth quarter. Local handset makers GTE and Huawei gained last year, supported by wider penetration among all wireless providers and a shift toward more feature-loaded phones. ZTE, for instance, rose more than Apple declined, climbing from a 3-percent share in the first quarter to an 11-percent share at the end of the year.

“If you want to sell handsets to the mass market, a simple rule of thumb in China is that the handset price has to be close to 70 percent of the monthly salary,” emphasized Jayesh Easwaramony, who works as an analyst with Frost & Sullivan in Singapore. “Today, an iPhone is more than two months’ salary.”

Huawei’s popular Honor smartphone, for instance, retails at 1,800 yuan (or about $290), while the iPhone 4S would cost 4,988 yuan, nearly two and half times the Honor’s price. However, given the sheer size of the market, Apple could still do very well marketing itself as a high-end handset for the affluent, and the company could mitigate its loss in market share by inking deals with new telecom operators. At the moment, iPhones are available only through the country’s second-largest wireless provider, China Unicom. Apple is expected to ink a deal with the Country’s number three, China Telecom, later this year.

Many analysts expect that Apple’s market share may continue to slide until the release of the iPhone 5, but may see a resurgence in 2013 when it opens up its carrier base beyond China Unicom.

Controversial iPad Manufacturer Raises Wages

Not too long after facing considerable scrutiny over its labor practices and worker safety, Foxconn Technology Group, Apple’s top manufacturer for iPhones and iPads, has increased the wages of its workers for the third time since 2010. Foxconn released a statement announcing that the monthly pay of a junior-level workers in Shenzhen had been increased to 1,8oo yuan, double what they were being paid three years ago, but still only a fraction of the price tag on an iPhone 4S (which costs 4,988 yuan). Workers passing a technical exam will receive another raise to 2,200 yuan per month.

Foxconn came under renewed scrutiny last month when The New York Times published a blistering exposé on the company that documented the long hours, dehumanizing living conditions, and unhealthy and unsafe standards at its massive manufacturing plants. Last June, three workers were killed in an explosion at a plant in western China, and the company saw a spate of suicides among younger workers in 2010.

In response, Apple came to an agreement with the Fair Labor Association that will have the non-profit, Washington-based group undertake what Apple says is an “unprecedented” inspection of working conditions at its foreign manufacturers. According to the FLA, conditions at Foxconn and Apple’s other foreign manufacturers are still far superior to conditions at garment factories and other manufacturers in China. The monitoring process was due to begin on February 14.

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com