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Little Fruit

29 January 2014 By Ethan Bilby

Apple may be a dominant player in flogging smartphones in most of the world, but it’s still an also-ran in China. Disappointing global sales increase the pressure on the iPhone maker to gain ground in the People’s Republic. Though its deal with China Mobile should provide a boost, lower-cost rivals will limit its market share gains.

The iPhone still accounts for more than half of Apple’s revenue, but sales are slowing. The company sold 51 million handsets in the last three months of 2013, just 7 percent more than the same period a year ago. Chief executive Tim Cook says Apple needs a “reasonable” business in the world’s largest smartphone market. So far, however, it has lagged. Apple sold roughly 24 million iPhones in China in 2013, according to Breakingviews calculations based on Canalys estimates. That’s equivalent to about 7 percent of the market – half Apple’s worldwide reach.

Graphic: How many phones does Apple need to sell in China to reach a 2014 market share of…

A long-awaited deal with China Mobile, which was formally launched earlier this month, should help. Yet Apple still faces an uphill task. If its market share in China was unchanged, iPhone sales would probably rise to about 29 million this year. Lifting its share of the market to 10 percent would require it to sell an additional 14 million phones. Even then, it would still lag behind local rivals like Lenovo and Yulong.

Another headwind is that Chinese consumers are shifting to cheaper models. Gartner expects this year’s winners to be low-end handsets from the likes of Xiaomi as well as players with names like Big Cola and Little Spicy.

Apple is unlikely to join that food fight: even its new “cheaper” 5C model retails for around $750. Sticking to premium pricing will allow the company to defend profit margins which are many times those of its cheaper rivals. But sticking to that strategy will also restrict its ability to gain market share. Investors hoping for China to pick up the slack of slowing global iPhone sales are likely to be disappointed.


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