Cheap iPhone Not Cheap Enough in China; unsubsidized 16GB iPhone 5c is being offered at 4,488 yuan ($733) in China, barely less the 5,000 yuan Chinese consumers had to fork out for the old iPhone 5 and significantly higher than the 3,000 yuan analysts had predicted

September 11, 2013, 2:00 AM

Cheap iPhone Not Cheap Enough in China


Apple Senior Vice President of Worldwide Marketing at Phil Schiller speaks about the new iPhone 5C during an Apple product announcement at the Apple campus on September 10, 2013 in Cupertino, California.

It has come to pass. The world now has an “affordable” iPhone. While detractors of Apple‘sAAPL -2.28%new iPhone 5c, unveiled in Cupertino, Calif. today, have said the “c” stands for cheap, fans in the world’s largest smartphone market are saying it stands for something else: China. In part that’s because more so than in any other market, Apple stands to gain sales in China from the cheaper offering thanks to the country’s huge number of low- and middle-income smartphone users. But it’s also because in China the new iPhone quite frankly won’t be all that cheap.The unsubsidized 16GB iPhone 5c is being offered at 4,488 yuan ($733) in China, barely less the 5,000 yuan Chinese consumers had to fork out for the old iPhone 5 and significantly higher than the 3,000 yuan analysts had predicted as a likely price for the new phone. Carriers have yet to announce subsidized packages for the phone, though even a subsidized device could still fail to reach the majority of China’s urban consumers, according to a projection from the Wall Street Journal based on income distribution data from research firm CEIC Data.

The projection, developed in consultation with analysts, assumes that a working, urban family would be willing to spend, at most, half of its total monthly income on a single smartphone. If China Mobile or another carrier were to offer the new phone at the previously projected 3,000-yuan price,  around 260 million Chinese urban residents could potentially be willing to buy it. That would effectively double Apple’s addressable market from the 125 million who were willing to buy the old iPhone 5.

But it would still be too pricey to appeal to roughly 430 million people, or 62% of the country’s urban population.

The limits of Apple’s reach with even a subsidized version of the iPhone 5c are clear in Yangquan, a city of one million in the mountainous Chinese province of Shanxi. There, one Samsung vendor named Wang Shoubin estimated that around 70% of customers were looking for phones between 1000 yuan and 2000 yuan, with many others looking even lower.

“Here everyone buys national products,” he said, referring to the proliferation of Chinese domestic brands that have come to dominate the low-end by offering cheap phones.

In one of the many smartphone stores that sit across from the train station in Yangquan, one vendor tries to sell Jiang Haisen, a 30-year old construction worker, on a phone made by local phone maker Oppo Electronics Corp. that runs for 1000 yuan.

“This phone has the same hardware as Apple and the casing is made special to stick to your hand when you hold it up,” she says as she opens her fingers to show how the phone stays pasted to her palm. Despite her claims about the phone’s iPhone-esque quality, the touch screen sticks slightly as she slides her finger over it to flip between menu screens.

Mr. Jiang isn’t convinced and keeps looking, but the Oppo phone is in his price range of around 500 yuan to 1000 yuan. Though he said he would like to buy an iPhone, he simply can’t afford one.


Bloomberg News

In Shijiazhuang, the cheaper iPhone is likely to sell well, but it still faces stiff competition from local brands.

Others in the town said they saw a patriotic benefit in buying Chinese brands.

Wang Hao, a 32-year old who works in insurance, said he bought a Huawei phone, and would buy Huawei in the future, in part because of the company’s multiple run-ins with the U.S. government.

“I heard about Obama blocking Huawei from the U.S. market so I want to support them,” he said.

Even in the far more affluent city of Shijiazhuang, where vendors said they expected a cheaper iPhone to sell well, the phone will still face stiff competition from local phone makers. According to three different vendors in the city’s Hailong Electronics City, most sellers will be trying to up-sell users to the iPhone 5C from cheaper phones made by domestic companies.

Ma Tao, who owns a shop on the second-story of the electronics mall, echoed concerns that have already been voiced by some analysts (and perhaps taken to heart by Apple): that a cheaper phone would lead to a short-term spike in sales, but that it would erode Apple’s reputation as a maker of luxury high-end phones in the long run.

Likening the challenge of selling a cheaper iPhone to one he currently faces selling Samsung’s middle-range handsets, Mr. Tao also said he didn’t think the iPhone 5c would fly off the shelves as quick as cheaper Chinese made phones. “Xiaomi phones are 1500 yuan. They’re cheap and they have about the same hardware as more expensive Samsung phones,” he said, referring to phones made by Xiaomi Inc., a popular vendor that sells high-spec phones close to cost.

“If the inside is the same, but [the phone is] 1,000 yuan cheaper, people will choose it,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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