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Apple May Launch the Next iPhone in China

One by one, the United States is losing more of its economic boasting rights to China. The Communist nation has snatched the title of world's biggest market for PCs and mobile phones. And the research firm Flurry Inc. reported yesterday that China is activating more devices running Apple and Google Android operating systems than the US.

In other words, China is fast becoming the world's biggest market for smartphones, the more profitable high end of the mobile handset market that had been dominated by consumers in Western nations. China may soon become the No. 1 market for products like the iPad and competing devices from companies like Samsung and Dell.

How thirsty are the Chinese for iPads, iPhones, and other hot consumer electronic products? Reports indicate these devices are flying off the shelves. Queues for new {complink 379|Apple Inc.} products are typically longer there than even in the US, where the devices are first introduced. The new iPad, which debuted only weeks ago and has yet to be introduced in many parts of the world, is already wending its way legally and illegally to China.

What this means is that the value of the Western consumer — juxtaposed against China's faster-growing market — is dwindling fast. China is looking more like the starting point for product introductions, rather than the afterthought it has been for companies like Apple. Western consumers certainly have more disposable income, but Flurry says in its latest iOS/Android report that the greater mass of the Chinese consumer market and its sales potential by far exceed the opportunities available elsewhere.

With China now activating more devices per month than the U.S., this means that the gap is closing between the two countries in terms of installed base. Not only is China already the second largest app economy, but also could eventually overtake the U.S. as the country with the largest installed base of smart device users. We estimate that the U.S., a more mature market, currently has more than twice as many active devices than China. However, China, a faster growing, emerging market, already has twice as large an installed base as the next largest market, the UK.

On a practical level, why should Apple introduce its next iOS device in the United States, rather than in China? There is the possibility that such a move could antagonize Western consumers, but Apple will take the inevitable step in the near future of launching an iPhone or iPad in China.

Of course, there are other reasons it may not want to do this, including the desire to conduct a soft launch to iron out the kinks in a device before a global launch. However, the fact that it hasn't had to recall or make major repairs to any of its devices indicates the company conducts extensive tests before each product launch. It's therefore conceivable that Apple, which now generates more than half its annual sales outside the United States, would market the next iteration of its products in China before doing so at home. Also, the products are manufactured in China, which is now getting ready to snatch the crown of biggest market from the US.

If Apple does launch the iPhone 5, 6, or 7 outside the United States, the most likely location would be China. It has earned the bragging rights. What an odd sight that would be, though — US consumers watching on giant screens in Times Square as Chinese shoppers scramble for the iPhone 7, or the even newer iPad (or whatever), that they can't get their mitts on for two or more weeks!

It might be a smart business move for Apple. I am just not sure how the company would negotiate that tricky dance or explain it to US consumers.

46 comments on “Apple May Launch the Next iPhone in China

  1. Barbara Jorgensen
    March 22, 2012

    There's no arguing with those numbers. The one thing that did occur to me while reading this was the service providers in China. I believe for the Internet and social media, at least, there is still limited access and what we in the US call censorship. It doesn't seem to be a problem for the hardware makers as this study indicates. But I wonder if that would discourage OEMs from launching there first. Can the devices really strut their stuff if the access and content are limited? I'm curious.

  2. Houngbo_Hospice
    March 22, 2012

    “I am just not sure how the company would negotiate that tricky dance or explain it to US consumers.”

    Is there any fear that Apple might lose its U.S. users' esteem if it launches its products in China first? How bad will this affect Apple revenue in the U.S.? I'll presume that Apple can easily get away with that… Maybe not?

  3. bolaji ojo
    March 22, 2012

    Hospice, I am almost sure Apple fans will find a way to explain whatever decision the company takes. It shouldn't be a problem for them and the rest of the consumer base may not care either. They just want the product to work while nationalists concerned about the US losing status don't have a loud enough voice.

  4. bolaji ojo
    March 22, 2012

    Barbara, Right. However, buyers in China aren't worrying that much about their access to the Web. They've learned to bypass or ignore government controls. And, in terms of demonstrating the workings of its iPhone and iPad, Apple doesn't really need to get into areas the Chinese government may not want it to thread.

    A bigger concern for Apple might be related to its ensuring the product meets consumer standards.

  5. Barbara Jorgensen
    March 22, 2012

    I agree with Bolaji–Apple customers won't flinch if the company changes its methods, as long as the products retain their quality and technology. Among this base of fanatic customers, Apple can do no wrong. Judging by iPad sales, customers weren't discouraged by Apple's relationship with Foxconn. And it doesn't look like other issues are putting a dent in demand either. The new Ipad runs hot, eats up power and runs through a month's worth of downloads in a day or two. Even after paying $500 for a tablet, Apple users are happily shelling out more money for the services.

  6. syedzunair
    March 23, 2012

    @Barbara: I agree with you completely. Apple enjoys a very high customer loyalty ratio. The devices have become a part of the consumers life and they are very content with it. I rarely see anyone moving from an iphone to another smartphone. People are really hooked onto it. 

    Even if the price taga are high and there are a few minor issues with heating etc. The Apple consumers will keep on buying any product the manufacturer puts to market. And I think this has to do with the innovation that Apple puts into its products. 

  7. bolaji ojo
    March 23, 2012

    That about sums it up. You queue up for hours to pay $500 for a product, it heats up, gobbles up your air time, your service provider tells you to pay more, then somebody tells you the conditions under which the device is made isn't up to standards you would accept personally and you still don't see anything wrong with any of this! It's a religion and whatever the company does is just perfect.

  8. Barbara Jorgensen
    March 23, 2012

    Bolaji: put that way, it really does sound crazy. Worse yet, the media feeds the frenzy by covering the lines. It's similar to the Black Friday situation: people's desire for an item becomes a spectator sport. At least the folks in the Apple lines seem to behave better…

  9. dalexander
    March 23, 2012

    Bolaji, I think the grabber in this article is worth some serious consideration. If by 2020, the US market is so diminished in favor of China, that new product introductions will be presented into China, then it will follow that whatever China thinks, China gets in the way of technology advancement benefits. That is like putting a turbo boost into China's economic engine. He who has the most coin, calls the shots. Very astute article.

  10. dalexander
    March 23, 2012

    Barbara, Good observation and good question. I think there is a mass mind mentality in China as influenced by the government. If the government says censorship is good for the people, then it must be. Maybe technology and freedom of expression aren't mutually exclusive if every thing that needs to be said can be said as far as the people are concerned. Was there any outrage from within China when the Foxconn working conditions were exposed? Rhetorical question.

  11. Mr. Roques
    March 23, 2012

    Is asking for simultaneous launch days too much? I'm worried that if they launch in China first, they will need a few weeks before the hype goes down and they can tackle the US's hype. No?

  12. ahdand
    March 24, 2012

    I think they will have a good market in CHina for the launch and also it will help them to wipe off the chineese branded copy phones from the market.

  13. ITempire
    March 24, 2012

    Recent trends indicate that many consumer electronics items are being inaugrated at the Far East Asian soils. The Sony Playstation 3 was an example. So it wont be surprising if China hosts the launch of the next iPhone. However, with the globalization revolution making way for the trend of manufacturers getting their production lines nearer to their highest consumer bases, probably due to supply chain cost avoidance, China and India will certainly be the biggest beneficiaries of the move. Also, with the US having a population of 1/4th of that of China, the incentive to technology manufacturers is clear.

  14. ITempire
    March 24, 2012

    @ Douglas

    China is currently in such a position where it can manipulate decisions of the corporations as the corporations know that their customer base and cheap cost production plants are in China; so they are dependant. And we know that the one who controls corporations, controls laws as well. Unfortunately, the capitalism culture is something that has no ethical boundaries and it can force relocation all the resources of the world to a single location if it sees the move profitable.

  15. Taimoor Zubar
    March 24, 2012

    @Barbara: Part of the hype created on the launch of any Apple's product is a marketing gimmick by Apple. Just because the media shows how crazy some of the fans are after Apple's products, other people are enticed to join in and become part of the gang.

  16. Taimoor Zubar
    March 24, 2012

    Speaking of the Chinese government and the controlled economy, do you think the Chinese government would allow and encourage a foreign company like Apple to launch their product in China? Wouldn't it impact the local Chinese brands in some way?

  17. _hm
    March 24, 2012

    Probably not. There is no need. It looks like good wish, but Apple may not like this logic.

  18. stochastic excursion
    March 24, 2012

    Apple has some life in it yet when it comes to negotiating favorable treatment from the Chinese.  I think the prestige of an Apple product launch supported by remunerative bureaucratic relations will win China over to the idea of being home to a preferred Apple market.

  19. Anna Young
    March 25, 2012

    @_hm, tell me what will stop Apple launching its next product in China? Tim cooks, said “Consumer response to our products in China has been off the charts” So If Apple decides to launch its next iPhone or whatever in China, it will not raise a stare. Apple seem to have an edge over its competitors.

  20. Wale Bakare
    March 25, 2012

    @nimantha that would probably assist in combating grey phones. But i dont really think situation of iphone cloning is as high incomparison to Nokia, Samsung and BB in the country.

  21. ahdand
    March 25, 2012

    Is it ? Well I can understand Samsunng because they are the front runners along with Apple these days but Nokia and BB. Do they have a good maket in China compared to these 2 ?

  22. bolaji ojo
    March 25, 2012

    _hm, Yes, it's probably a not so straightforward argument at this point but follow the future and see what happens. The “home” advantage can only take a company like Apple so far. The reality of today's world is that a company like Apple is more a global enterprise than a national or regional player. If the economics make sense, I believe Apple will eventually do this and what we are seeing in the company's sales points towards that direction.

  23. bolaji ojo
    March 25, 2012

    And, by the way, Samsung introduces its phones first mainly in the United States or anywhere it believes the product would sell fastest. I don't believe anyone in Korea minds where Samsung first launches a product. Why is that all right for Samsung but not for Apple?

  24. Anna Young
    March 25, 2012

    Bolaji this is exactly my point. Should it matter where Apple launches its product? If China happens to be where demand for Apple's products lies, I don't see anything stopping its launching

  25. Ashu001
    March 25, 2012

    Bolaji,

    I was reading your blog and this statement made me wonder;why is this even important???

    On a practical level, why should Apple introduce its next iOS device in the United States, rather than in China? There is the possibility that such a move could antagonize Western consumers, but Apple will take the inevitable step in the near future of launching an iPhone or iPad in China.”

    Does it matter to most consumers of electronic products if they get it only after the Chinese or some other country gets it ?

    This is a good move,if it does happen.I want to see China grow and become a much-much bigger consumer market than it is today.

    This is the No.1 thing which will help re-balance the Global Economy and ensure excesses of the past are not repeated.

    In particular,I find it really amazing that hardly anybody in the West pays for their electronic products in cash-They buy it on Credit and they just keep paying the installments forever and forever.

    I was reading some interesting economic data which said that the Average American today has Median Savings of just USD 6000!!! [Assets-Debt]

    When you look at how little that amount is ,you wonder how they keep purchasing Newer and Newer electronic Gadgets Year on Year every year.

    This behavior has to change.

    Also,The Chinese workers are starting to demand higher salaries which means they can better afford all those products which they themselves manufacture.So this will most definitely help develop a bigger and more robust market for these products in the long-run[The Chinese tend to buy these products from their Savings unlike in America where everything gets purchased on Debt].

    Regards

    Ashish.

  26. Ashu001
    March 25, 2012

    Taimoor,

    Given that most Chinese manufacturers are focussed only on ripping off and stealing western Designs;I am sure this will have a dramatic impact on these products in China.

    Their market will be destroyed big-time.

    After all,the biggest problem which these countries(like China) face is that it is very-very difficult to tell the difference between a Fake and an original piece of Hardware.

    If Apple will launch first(or a simultaneous Global launch would work too) in China;then Chinese consumers would be able to tell the Original from the fakes much easier and would undoubtedly reject them because of their inferior quality.

    Will the Chinese Govt permit this destruction?I am not so sure.But no harm in trying!!!

    Regards

    Ashish.

  27. _hm
    March 25, 2012

    Chinese consumer are good at following American counterpart. It will be quite confusing to Chinese consumer and consumer at large. Launch in China will be preposterrous. Good litmus test is to launch product in USA only. 

  28. elctrnx_lyf
    March 26, 2012

    THis would definitely help to deter the manufacturers of duplicate iphones by any other chinese companies. At the end all the money will come back to Apple and its definitely a good sign for USA, isn't it?

  29. Ashu001
    March 27, 2012

    Guys,

    We all have been wondering(&speculating) on EBN for the longest amount of time,what Apple will do with most of its Offshore Cash pile(that was generated by Sale of their products outside the US which will not come back to America unless the Tax laws are changed dramatically or they permit a  one-time special Tax Holiday)

    This just in.

    Apple is going to pour the money into China.

    http://www.bbc.co.uk/news/business-17520167

    Alongwith the news that Apple did not actually exploit Chinese workers(No Surprises there…);means Apple is now very much on its way to mending fences with the Chinese Authorities and do more and more Business in China.

    The American Life show's host, Ira Glass, wrote in a personal Blog post that in retrospect he and his team were “horrified” to have broadcast Daisey's account.

    http://www.bbc.co.uk/news/technology-17405011

    Regards

    Ashish.

    P.S

    People can spin this how they want,but the fact of the matter is China is now becoming more and more important for most American companies than America itself-What this does for Companies affiliation with America(basically calling them American in the first place);only time will tell.But the portents are not Good.

  30. Ashu001
    March 27, 2012

    Lyf,

    In the short-term consequences of this move will be slightly Negative for the US(basically down to loss of prestige from losing the Numero Uno status) but in the long-term;it will be unimanimously positive as China becomes undisputably the World's Largest Consumer Market and thereby ensures the World Economy rebalances sustainably away from an unhealthy reliance on American Demand.

    Regards

    Ashish.

  31. bolaji ojo
    March 27, 2012

    Ashish, It's amazing how much emotions get dragged into what might be a simple business decision for a company and how national interest gets to play a role in activities of economic nature. Is this a simple business decision or one with national implications for Apple? Do consumers really care as long as their interest is served?

  32. bolaji ojo
    March 27, 2012

    Is the world beginning to see the emergence of a new world economic order dominated this time by a different region of the globe and one single country? If your assumption is correct that China will become the top consumer economy in the world, where does this put America and what will the US have to do to be relevant?

  33. Ashu001
    March 27, 2012

    Bolaji,

    My point precisely.

    Think about it-The First cellphones were manufactured in America before manufacturing was moved to South East Asia and then to China.

    Did these moves stop American consumers from buying Cellphones?

    Think a little further to an Interview that Steve Jobs gave a little before he died.

    If I remember correctly it was just after he met Obama or some other Senior official in the Government-He was asked if Apple would consider moving some manufacturing back to America.

    His answer was categorical-As things stand Today-No.

    Did that make any difference to Apple Sales in America???

    If American Consumers don't care whether the company which sells them products here in America,provides them with Jobs too;then why should they care about something as insignificant as whether the Phone releases first in China or America???

    Or,fast-forward to 2012 and news breaks out that Apple was “exploiting” Chinese workers to produce their products in China.

    Did that Make any difference to Apple Sales ??? Even amongst the so-called Ethical,Liberal Crowd(including Obama himself)???

    Bottomline, is exactly what you said-Consumers don't care about the consequences of their actions as long as their Interests are served.

    Regards

    Ashish.

  34. Ashu001
    March 27, 2012

    Bolaji,

    If this assumption is correct,Then that going ahead puts America at No.2(in Terms of Consumer Economy) and still very,very relevant in the Global Scheme of things.

    Think about it,Today whenever some negative Economic news comes out from either America,Europe,China or Japan the S&P 500 falls.

    They all remain very important in the Global Scheme of things.

    And going ahead they will continue to remain important.

    It would help if America did Two things-Gave more support to Manufacturers and modified Tax laws for Corporations so that they don't pay the same amount of Taxes(for Overseas Profits) that they pay for Domestic Profits.

    Regards

    Ashish.

    P.S

    I don't know how accurate the Economic Numbers coming out of China are(but then even America massively manipulates its Numbers too);but if they are incorrect/ heavily manipulated to the upside then this assumption that China will soon overhaul America may still be some way away(like a Decade or so).

  35. bolaji ojo
    March 27, 2012

    Okay. Well stated. So, how about a different question then? When a company takes a decision in its interest that a government opposes because officials believe it is not in national interest, should it intervene? An example is Huawei and Australia. What if the $38 billion was to be spent by an Australian company rather than the government and Huawei submits a competitive bid? Does the government have the rights to say no in a democracy?

  36. Ashu001
    March 27, 2012

    Bolaji,

    I am reminded here about something said by Some Smart Corporate Execuitive in America-

    Its easy for the Government to say(&decide) who they will buy from and who they won't and at what price;After all the Government has no competition.

    He was saying this in response to the decision by Some State Government in America(Colorado,I think);to bring back their Back-office processing which they had outsourced to India because of Cost Savings in the name of Saving Jobs.

    Governments don't operate from the Same Rule Book as You,Me or Ordinary Corporations.Major reason being-They have the ability to Tax you(&keep raising those taxes whenever it suits them) all they want.

    For all practical purposes Governments can do Whatever they want.

    Australia is by and large a very open economy,excluding Agriculture which is heavily protected(much more open than America) and I doubt such an incident would have happened if there were'nt legitimate security concerns over Huawei's Telecom Equipment-After all there is precedent here,India a few years back banned India's Private Sector Telecom Providers from purchasing Telecom Equipment from China(including Huawei) in the name of Security concerns.

    A few African Nations also did the same thing.

    Why should we look so far? Even in America ,CNOOC was banned from Buying that American Oil Company Unocal in the name of National Security concerns.

    (And these are all Democracies).

    So Yes,Governments will do whatever they want,whenever they want-Economics be damned.

    The worrying thing is that we are now starting to see signs of extensive Global Protectionism(in the name of pandering to short-term Populist interests) worldwide just like what happened with Smoot-Hawley in The Great Depression;if this gets out of hand;The Current recession we are seeing today will seem like a Walk in the park compared to what could happen going ahead.

    Regards

    Ashish.

  37. bolaji ojo
    March 27, 2012

    elctrnx_lyf, Not if the money made by companies like Apple and its competitors continues to stay outside the US.

  38. bolaji ojo
    March 28, 2012

    Ashish, This is a complicated issue with some level of nationalism and then some focus on business opportunity. For Huawei, this is going to be a problem it won't be able to dodge in the West. For Western governments, it presents a paradox. They can play to the crowd at home and insist they won't let Huawei bid on any “security” related issues whereas they must still provide the opportunity for the company to operated in their territory because of capitalism. Which one should it be?

  39. Ashu001
    March 29, 2012

    Bolaji,

    Its funny is'nt it?

    On the one hand,The US Govt wants the Chinese to re-value their Currency upwards vs the US Dollar(by purchasing Less Dollars and Treasuries as Foriegn Exchange Reserves) and on the other hand,they won't let the Chinese Invest all those Billions of  US Dollars it holds(within America).

    This inspite of the fact that America is the Biggest market& economy in the world today and so if any place can absorb the Billions of US Dollars which China holds today it is America.

    And its not like America does'nt need the Investment-Most Infrastructure in America today is crumbling for lack of funds.

    Politics can and always has been a game of paradoxes and Ironies.

    Regards

    Ashish.

  40. ahdand
    March 31, 2012

    The only eason I see in it is that Apple has a good market share to try out everything anywahere.

  41. ahdand
    March 31, 2012

    Is it ? But when you see the comparissions over the web Apple is leading the market.

  42. ahdand
    March 31, 2012

    Exactly but the only issue is that if they understand that China is the place where they can start off well after analyzing the past sales recod, they should not try to repeat it again.

  43. Anna Young
    March 31, 2012

    I agree Nimantha.d. I think Apple's reason to launch in China is based on past success rate.

  44. ahdand
    April 12, 2012

    Yes but I dont think its the only reason as such.

  45. Anna Young
    April 12, 2012

    I'm sure there might be other reason. Are you able to mention any other reason?

  46. ahdand
    August 10, 2012

    Well I think the main target reson would be to counter attack the chineese copy phones.

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