Is Apple Desperate For a Cheaper iPhone?

The clearest signal that a cheaper iPhone from Apple (NASDAQ:AAPL) targeted at emerging markets has become a necessity comes from a reading of the Chinese smartphone market composition. As Bloomberg points out, the world’s largest handset market is being outsold in China by a local company less than 1 percent its size.

China Wireless Technologies rose from its previous quarter’s sixth spot to third in the IDC numbers for China in the three months that ended in September. Samsung (SSNLF.PK) took the No. 1 spot, with three other local manufacturers rounding out the top five. Lenovo was in second place, while ZTE and Huawei Technologies placed fourth and fifth, respectively. All of those companies offer devices at a fraction of the iPhone’s cost.

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“Apple, with its current stable of products, is unlikely to rank high as long as the general level of affluence in China is low,” Phillip Securities analyst Magdalene Choong told Bloomberg.

China Wireless’ Coolpad 8060, which runs on Google’s (NASDAQ:GOOG) Android operating system and has a four-inch touchscreen display, sells for 619 yuan, or just under $100. The cheapest iPhone costs 3,088 yuan, while the latest iPhone 5 starts at 5,288 yuan.

China is growing rapidly as a market: smartphone shipments in the country are predicted to rise 44 percent to 300 million units this year, according to IDC. However, much of the growth will be driven by handsets costing about 700 yuan, the research firm added.

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Apple has taken extra initiatives in China by opening more stores and starting an installment payment plan. It is also said to be working on reaching a handset deal with China Mobile (NYSE:CHL), the world’s largest wireless provider company by subscribers. But the biggest push will come from making the rumored smaller, cheaper version of the iPhone a reality. Such a device will make a big impact and potentially hurt earnings for China Wireless and other low-cost local manufacturers, Nomura analyst Leping Huang told Bloomberg.

“Apple’s next action will affect the whole industry,” Huang said. “If it comes out with a cheaper iPhone, it will change a lot of market dynamics.”

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