Apple Expands China Business, Moving Beyond Big Cities

October 30, 2013 Leave a comment

Apple Expands China Business, Moving Beyond Big Cities

Apple Inc. (AAPL) Chief Executive Officer Tim Cook is working to broaden the company’s distribution in China as a way to reignite growth after the iPhone maker reported its first decline in annual profit in at least a decade. Cook said Apple is expanding how it sells the iPhone and iPad tablet in China, focusing on areas outside the country’s largest cities. The Cupertino, California-based company is adding more outlets besides Apple stores to sell its devices, and the iPhone is now available in 50 percent more stores in the country than last year, he said on a conference call this week.Apple’s sales in China rose 6 percent in the recent quarter to $5.7 billion, making it the company’s second-biggest market after the U.S. Yet it lags behind Samsung Electronics Co. and local manufacturers who offer cheaper smartphones and tablets with more design choices than the iPhone and iPad. China is critical as Apple seeks to jump-start sales and profit growth, which have stalled in the increasingly crowded mobile market.

Apple’s “one-size-fits-all” approach is more challenging in China, said Robin Li, co-founder and chief executive officer of Baidu (BIDU) Inc., China’s largest search engine.

It will take more than new stores to draw in customers, Li said. Mobile phones need to be more customized for the Chinese market, and buyers in the country tend to prefer larger screens and the ability to personalize their devices with software tools to tap out messages more quickly in Chinese, he said.

“Chinese characters are very different from English — you need an input method engine to do that,” Li said in an interview with Bloomberg Television. “Apple does not have a good one, and they do not allow good ones to be uploaded in the App Store.”

Android Dominates

Baidu, with more than 20,000 employees, manages about 80 percent of China’s search-engine queries and is working to make its service more accessible for the 464 million customers in the country that log on to the Internet from a mobile device. Devices running Google Inc. (GOOG)’s Android software dominate the mobile-computing market in China, according to Li. Worldwide, Android will have 75 percent of the smartphone operating-system market in 2013, compared with 17 percent share for Apple’s iOS software, IDC estimates.

Like many Chinese customers, Li said he uses a Samsung Note smartphone because it has a larger screen than Apple’s iPhone. At the same time, Li complimented Cook for appreciating the size of the Chinese market.

“He’s good. He’s very reasonable, he’s very smart,” Li said. “He understands the Chinese market.”

Immediate Release

As part of Cook’s push, Apple is putting China on par with other major sales hubs for the debut of its products. Last month, the iPhone 5s and 5c models were released in China at the same time as the U.S. and other countries for the first time, and the new iPad Air will be available there Nov. 1. The company opened its fourth store in Shanghai in the past few weeks.

“We’re working on both coverage, on launching earlier and execution, and continuing to build on our retail practice there,” said Cook, who has visited the country several times.

Apple may get a boost if it forges a deal with China Mobile Ltd. (941), the world’s largest wireless carrier, to sell the iPhone. The companies have been negotiating for years and had been nearing a deal before the iPhone 5s was released last month, a person familiar with the talks said in September.

Apple fell 2.5 percent to close at $516.68 at yesterday’s close in New York. They shares are down 2.9 percent so far this year.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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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 (www.heroinnovator.com), 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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