Apple sales rocket in China, but growth may slow

HONG KONG Fri Apr 27, 2012 12:05pm IST

1 of 2. A customer walks out after shopping at an Apple store in downtown Shanghai February 28, 2012.

Credit: Reuters/Carlos Barria/Files

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HONG KONG (Reuters) - Apple Inc (AAPL.O) is likely to see its sales growth nearly double in greater China this year, but the pace will probably taper thereafter as competitors hit back with new products in the biggest global mobile phone market.

For the world's most valuable technology to get a bigger slice of the China market, it will also have to come up with an iPhone that supports the biggest Chinese mobile carrier's proprietary technology, settle an iPad trademark dispute and create more official sales outlets.

Apple's sales in mainland China, Hong Kong and Taiwan, expanded three-fold to $7.9 billion in the first quarter, making up a fifth of the total figure. Sales are on track to nearly double in 2012 from last year's $13.3 billion.

"We may not see a repeat of this year's stellar pace of growth in coming years unless Apple comes up with great products to keep up with consumers' demand and tastes," said Candice Wang, an analyst with research firm Analysys International.

Apple has been successful in raking in sales in China's wealthy first- or second-tier cities, b ut less so in the wider Chinese market, where overall income levels are still low.

Consumers with deep pockets generally see Apple as a premium product and status symbol, analysts say, and are willing to overlook certain drawbacks - such as that "Siri", the iPhone's voice-enabled personal assistant technology, does not speak Chinese.

"I see everybody using an iPhone, so I decided to buy one," said a user whose surname is Zhou, who lives in China's wealthy coastal province of Jiangsu. "I love the screens and the applications are really sleek." She has switched iPhones within a year to keep up with Apple's latest gadgets.

But for most of China, especially in third- or fourth-tier cities, that is not the case. A basic iPhone 4S costs 4,988 yuan, which is more than what many Chinese make in a month.

Even though Chinese salaries are on the rise, per capita urban disposable income was only 21,810 yuan in 2011, while per capita rural income was only 6,977 yuan.

For many Chinese consumers, the iPhone is out of reach and most have instead bought cheaper smartphones running Google's (GOOG.O) Android operating system, from the likes of ZTE Corp's (0763.HK) 000063.SZ.

ZTE's U880 smartphone costs less than 800 yuan and the Coolpad 9930 model sells at 1,670 yuan.

"There is no doubt that Apple's sales will keep rising, but market share is a different story," said CK Lu, analyst at Gartner. "If Apple wants to maintain or grow its market share, it will have to cooperate with its partners to roll out more affordable smartphones."

With China's smartphone shipments expected to hit 137-140 million in 2012, exceeding the United States for the first time, according to research firms IDC and Gartner, the potential is huge in an country with more than a billion mobile phone users.

For now, Apple still has the upper hand in the high-end smartphone sector.

"I've tried out iPhone 4S and Lumia 900 and I personally feel that if one really wants to buy a handphone, iPhone 4S is the way to go," Luo Wen, an Apple user based in the southern province of Guangdong, said in his microblog.

"Nokia is lagging behind by a far margin in terms of the overall feel of its products."

CLOCK TICKING ON CHINA MOBILE DEAL

Apple is expected to sell 16 million smartphones in China in 2012, double 2011's total mainly due to the addition of China Telecom (0728.HK) as a carrier partner, IDC said.

China Unicom (0762.HK) is the other official carrier that sells iPhones, leaving China Mobile, the biggest operator, the only one without an Apple contract.

"The clock is ticking for both parties to get a deal done," said Wong Teck Zhung, senior analyst at IDC.

"China Mobile might lose patience and decide to go for flagship handsets from other vendors while consumers, increasingly aware of non-iPhone alternatives, might also just get tired of waiting."

Wong said chances of a deal would bump up significantly if the upcoming version of iPhone supported China Mobile's 4G TD-LTE and its proprietary 3G technologies, provided Apple uses one of Qualcomm Inc's (QCOM.O) high-end Snapdragon chipsets.

In the tablet PC sector, Apple's iPad now dominates the China market with a more than 70 percent market share.

However, it has not launched its latest iPad product due to its lawsuit with a near-bankrupt Chinese technology company called Proview International Holdings (0334.HK), which says it owns the "iPad" trademark in China.

That legal tussle is awaiting a ruling from the Higher People's Court in Guangzhou.

(Additional reporting by Michelle Chen; Editing by Alex Richardson)

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