Here’s Why China Is Important to the iPhone’s Success

Apple Store Pudong Shanghai China

Source: Apple.com

After a record-breaking launch in the U.S. and select other countries around the world — a launch from which China, the world’s largest smartphone market, was conspicuously excluded due to a delay in the regulatory approval required by the government — Apple recently announced that the iPhone 6 and iPhone 6 Plus will soon be available to consumers in China. As retail stores, the country’s three major wireless carriers, and an extensive network of authorized resellers kick off preorders and reservations, let’s take a look at where Apple has historically made the iPhone available and why China is such an important market for the success of the newest generation of the premium smartphone.

Where in the world is the iPhone?

The iPhone 6 and iPhone 6 Plus were announced on September 9, and were available for preorder on September 12. They were available in-store on September 19 to consumers in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore, and the UK.

In a press release, Apple explained that the iPhone 6 and iPhone 6 Plus “iPhone 6 and iPhone 6 Plus will be available in the US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK beginning this Friday, September 19, and in more than 20 additional countries beginning on Friday, September 26, including Austria, Belgium, Denmark, Finland, Ireland, Isle of Man, Italy, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Qatar, Russia, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, Turkey, and United Arab Emirates.”

A more recent press release added that, “Apple’s fastest-ever iPhone rollout continues on the following dates: Friday, October 17: China, India, and Monaco. Thursday, October 23: Israel. Friday, October 24: Czech Republic, French West Indies, Greenland, Malta, Poland, Reunion Island, and South Africa. Thursday, October 30: Bahrain and Kuwait. Friday, October 31: Albania, Bosnia, Croatia, Estonia, Greece, Guam, Hungary, Iceland, Kosovo, Latvia, Lithuania, Macau, Macedonia, Mexico, Moldova, Montenegro, Serbia, South Korea, Romania, Slovakia, Slovenia, Ukraine, and Thailand.”

The company noted that the iPhone 6 and iPhone 6 Plus will be available in a total of 69 countries and territories by the end of October and are also on track to be available to consumers in more than 115 countries by the end of 2014, “making this the fastest iPhone rollout ever.”

How does that compare to the worldwide availability of the iPhone 5S and iPhone 5s after their launch?

The iPhone 5s and iPhone 5c were unveiled on September 10, 2013, and as Apple announced at the time, were available to customers in the U.S., Australia, Canada, China, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore, and the UK on September 20. In the models’ first weekend, Apple sold 9 million combined units of the iPhone 5s and iPhone 5c.

On October 25, the iPhone 5s and iPhone 5c arrived in Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, French West Indies, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macau, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Reunion Island, Romania, Russia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, and Thailand. On November 1, they were available in Albania, Armenia, Bahrain, Colombia, El Salvador, Guam, Guatemala, India, Macedonia, Malaysia, Mexico, Moldova, Montenegro, Saudi Arabia, Turkey, and UAE for a tally of more than 60 countries by the end of the year.

How about the availability of the iPhone 5? 

The iPhone 5 launched in the US, Australia, Canada, France, Germany, Hong Kong, Japan, Singapore, and the UK on September 21, 2012. It was available in 22 more countries on September 28: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, Hungary, Ireland, Italy, Liechtenstein, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and Switzerland.

The iPhone 5 arrived in South Korea on December 7 and in Albania, Antigua and Barbuda, Armenia, Bahamas, Bahrain, Bolivia, Brazil, Chile, China, Costa Rica, Cyprus, Ecuador, Grenada, Indonesia, Israel, Jamaica, Jordan, Kuwait, Macedonia, Malaysia, Moldova, Montenegro, Panama, Paraguay, Philippines, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Turkey, United Arab Emirates, and Venezuela on December 14.

On December 21, it was available in in Barbados, Botswana, Cameroon, Central African Republic, Egypt, Guinea, Ivory Coast, Kenya, Madagascar, Mali, Mauritius, Morocco, Niger, Senegal, St. Kitts, St. Lucia, St.Vincent & the Grenadines, Tunisia, Uganda, and Vietnam. The iPhone 5 was available in 100 countries by the end of December 2012.

So why does China matter so much for Apple and the iPhone?

Let’s start with some basic numbers: The GSM Association released a report in June that revealed that the Asia-Pacific region accounts for half of the world’s mobile subscribers, and will continue to be one of the fastet-growing mobile markets for years to come, hitting 2.4 billion by 2020. At the end of 2013, China was home to 630 million mobile subscribers — who accounted for 46% of the country’s population — and GSM estimated that 80% of those who accessed the Internet in China did so on a mobile device. More recently, Bloomberg noted that China had reached 1.27 billion wireless subscribers. China Mobile accounted for 62.4% of those accounts.

As Reuters reported, the Chinese government licensed the iPhone 6 and iPhone 6 Plus for use on the country’s networks two weeks after it was introduced in the U.S. Later, Apple announced that the new models will go on sale in China on October 17, with preorders starting on October 10. Beginning on October 14, consumers can reserve an iPhone for in-store pickup. The iPhone 6 and iPhone 6 Plus sold in China will support TD-LTE and FDD-LTE, and give customer’s access to the 4G and LTE networks of China Mobile, China Telecom, and China Unicom.

As Reuters noted at the time, China’s exclusion from the iPhone 6 and iPhone 6 Plus’s initial launch date took analysts by surprise, since Apple has repeatedly commented on the importance of China, which is the world’s largest smartphone market. Further, iPhone sales in China grew 50% in the April-June quarter from a year earlier, despite signs that Chinese consumers were by and large waiting for the release of the iPhone 6.

Sales in China accounted for about 16% of Apple’s $34.7 billion in second quarter 2014 sales. The Wall Street Journal reported that in the fourth quarter of 2013, Apple’s market share in mainland China rose slightly to 7% from 6% in the third quarter. The fourth quarter was the first full quarter after Apple launched the iPhone 5s and iPhone 5c in China, on the same day that they launched in the U.S.

With its 7% market share, Apple was the fifth largest smartphone vendor in China, a market that is dominated by Android (the manufacturers ahead of Apple were Samsung, Lenovo, Coolpad, and Huawei). In the fourth quarter of 2013, Apple reported worldwide sales of 51 million iPhones, and will look to keep that number growing when the iPhone 6 and iPhone 6 Plus becomes available to customers of China’s three largest mobile carriers — China Mobile, China Telecom, and China Unicom — on October 17.

What history do the top Chinese carriers have with the iPhone?

China Unicom was the first to offer the iPhone in China, beginning in October 2009. China Telecom began offering it in March 2012. (For years, China Mobile, the largest carrier in the world, did not offer the smartphone.) With the December 14, 2012 Chinese launch of the iPhone 5, customers of both China Unicom and China Telecom were able to buy the iPhone.

By the time that the iPhone 5s and 5c launched, China was included in the initial launch date — the same one when the phones were available to consumers in the U.S. Bloomberg reported that China Unicom saw more than 100,000 reservations for the iPhone 5s and iPhone 5c, an impressive figure, but one that The Next Web noted was 50% lower than the 200,000 reservations that the carrier collected within the first two days of the iPhone 5’s availability the previous year.

However, the iPhone 5s was still highly sought after on Apple’s website, and Bloomberg observed a downward trend in the value of subsidies that carriers were offering on the expensive smartphones, with China Telecom offering a subsidy on the iPhone 5s and iPhone 5c that was approximately 15% less than what it offered on the iPhone 5. Additionally, some consumers followed lower prices — China Telecom’s prices were lower than China Unicom’s — and other consumers opted to purchase the iPhone at full, off-contract price to avoid buying into a specific carrier’s plan.

In December 2013, Apple announced that it had entered into a multi-year agreement with China Mobile, the world’s largest mobile network, to make the iPhone available in China Mobile’s retail stores as well as in Apple’s own retail stores. Starting January 17, 2014, the iPhone 5s and 5c were available to China Mobile customers across China. In the press release, Apple chief executive Tim Cook was quoted as saying:

“Apple has enormous respect for China Mobile and we are excited to begin working together. China is an extremely important market for Apple and our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network. iPhone customers in China are an enthusiastic and rapidly growing group, and we can’t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China Mobile customer who wants one.”

Bloomberg reported in January that China Telecom cut contract prices for the iPhone 5s by about 15% in anticipation of the smartphone’s release by China Mobile. CNET reported in January that China Mobile accounted for about 760 million subscribers — more than any other carrier in the world — and analysts expected the partnership to bring between 15 and 30 million iPhone sales in 2014. Apple launched in only 16 Chinese cities, and will be in 300 by the end of the year. Similarly, China Mobile is estimated to have grown to nearly 800 million subscribers, and represents one of Apple’s most important partnerships as Apple looks to grow outside of the mature U.S. smartphone market.

How do this year’s (early) numbers compare with previous years’ figures in China? 

Apple announced that it received a record 4 million iPhone 6 and iPhone 6 Plus preorders in the first 24 hours that the new models were available. In the first weekend, Apple sold 10 million of the new iPhone models. But China was not a participant in that initial launch due to a delay in the regulatory approval that Apple needed to make the smartphone available to Chinese consumers, and when it comes to the numbers of iPhones reportedly preordered in China, the rest of the records pale in comparison.

Reports of high numbers of preorders began before the iPhone 6 and 6 Plus were even officially launched. AppleInsider reported on September 2 that China Mobile had reached 33,000 iPhone 6 preorders before Apple even officially unveiled the iPhone 6 and iPhone 6 Plus in California. Cult of Mac reports that Chinese websites allege that preorders for the iPhone 6 and iPhone 6 Plus hit 20 million between Friday, October 10, and Monday, October 13.

Ten million preorders reportedly came from popular retail website Jingdong Mall, where 4.66 million orders were placed for the iPhone 6 and 4.82 million for the iPhone 6 Plus. The other 10 million orders came from orders placed with Chinese telecom providers, China Mobile, China Telecom, and China Telecom. However, the report doesn’t specify whether the tally accounts for the “unofficial reservations,” which the three major carriers all took before the preorder date.

Reservations are less formal than preorders, and amount to a commitment to preorder or buy an iPhone. That contrasts with a preorder, which is an actual transaction, in which the consumer orders the phone before it’s available. However, as CNET reports, reservations are generally considered a good indicator of demand. Cult of Mac estimates that if the report doesn’t include these reservations, they could add up to another 8.5 million iPhones to the current numbers.

While it’s uncertain if these figures are even close to accurate, it’s worth noting that when the iPhone 6 and iPhone 6 Plus launched in ten countries: the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore, and the UK, Apple saw 4 million preorders in the first 24 hours, and sold 10 million iPhones during the launch weekend — half the number of preorders being reported for China. AppleInsider reported that China Mobile, China Telecom, and China Unicom allegedly reached 1 million iPhone 6 and iPhone 6 Plus preorders in the first six hours of their availability. Along with the three major Chinese carriers, more than 6,700 authorized resellers will have the iPhones in stock when they launch in China on October 17.

Last year, Apple sold 9 million iPhone 5S and 5C models in the initial launch to 11 countries, including China, in their first weekend of availability. The iPhone 5 sold more than 5 million units in the first weekend after its launch on September 21, 2012 — a launch in which China wasn’t included. The iPhone 5 didn’t arrive in China until December 14, 2012, and in its first weekend of availability there, sold 2 million units from December 14 to December 17, 2012.

Since that time, Apple’s launch weekend figures have grown significantly. While official figures put Apple’s first-weekend sales at 10 million iPhone 6 and iPhone 6 Plus units, a recent report at Forbes estimated that Apple may have surpassed 20 million iPhone 6 and iPhone 6 Plus sales in just two weeks, with sales of the iPhone 6 outpacing those of the iPhone 5s and iPhone 5 at their launches, and sales of the iPhone 6 Plus growing at the rate of the iPhone 5c. The models’ availability in China’s huge market holds a lot of potential for Apple to sell many more.

Especially if the reports that originated with Chinese media sites are correct, China is on track to surpass the U.S. as Apple’s biggest smartphone market — a logical milestone for the country that constitutes the world’s largest smartphone market. While many domestic brands in China offer economical smartphones at much lower prices than Apple’s iPhone line, Apple offers a premium product, which is something that Chinese brands don’t have.

Apple will need to capitalize on the iPhone’s status as a luxury product — and the fact that it’s finally added the larger screen that consumers have demanded — to maintain or grow its market share in China. With its stronghold currently the mature U.S. smartphone market, Apple needs to leverage its iconic brand to gain share in an emerging market with a healthy appetite for luxury products, and it seems that China fits that bill. It will be interesting to see what Apple’s official numbers on Chinese sales reveal about the accuracy of the preorder and reservation numbers currently circulating, and how enthusiastic Chinese consumers really are about the iPhone 6 and iPhone 6 Plus.

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