iPhone 5 launches in China, Apple shifts focus away from U.S.

Summary:Apple has launched the iPhone 5 in China, a significant milestone for the company. Why? Because Apple generates 15 percent of its revenue from the country. But not for much longer: that percentage is set to rapidly increase over the 2013 fiscal year.

Apple chief executive Tim Cook said in October on the company's fourth quarter earnings call that it expects the iPhone 5 to arrive in mainland China by December .

In November, the iPhone 5 received regulatory approval for two versions of the iPhone 5 -- a 3G/GSM version for China Unicom's network, the second largest in the country; and a CDMA version for China Telecom's network, the country's third largest network. But it wasn't that simple . Apple also needed to receive a network-access license.

With the iPhone 5's debut in China today, all the hurdles are clear and the company is home free to sell the long-awaited 4-inch smartphone in a country with a potential user base of more than 340 million, or around 25 percent of China's ever-growing population.

Read this

Apple Q4: China growth, Cook slams Surface, iPad mini margins

The Cupertino technology giant's fourth quarter earnings are out. On the call, Apple executives discussed China, retail stores, iPad mini profit margins, and Tim Cook even took time to slam Microsoft's latest tablet incarnation.

Cook said on the Q4 earnings call that Apple generated $23.8 billion in China, up by $10 billion year-on-year, representing a 78 percent rise from the same quarter a year ago. 

Interestingly, despite the massive increase in sales in the country, China only represents around 15 percent of Apple's global revenue for the 2012 fiscal year.

With Apple's move to make a punt for the wider Chinese market, albeit a smaller proportion of the overall China mobile subscriber base, Apple wants more than just 15 percent. With the deals the Cupertino, Calif.-based technology giant has made with the two of the country's largest networks, Apple is breaking into a mostly untapped market where others, with the occasional rare exception, are failing to compete.

China is key for many companies, not just in the hardware space, and certainly not just in the mobile or smartphone space. Only a few firms, such as Lenovo and Samsung -- with their PC and smartphone offerings respectively -- have a leg-up in the region, which continues to shun most U.S. and Western brands.

But Apple isn't going in there with half-heartedly. It's jumping on two of the major carriers at first with the iPhone 5. However, in spite of the company missing out on a deal with China Mobile, the country's state-owned largest cellular network with more than 700 million subscribers, the technology giant's '15 percent' figure will still dramatically increase by the end of 2013.

China Mobile runs a different 3G hardware infrastructure than China Unicom, but in spite of this, a broader and more complex problem evolved from initial talks into issues of revenue-sharing, Reuters reported. That said, there's hope in the future that Apple can skip the 3G incompatibilities and jump straight on China Mobile's LTE network.

The network only has around 80 million subscribers on its 3G network, making a leap to its LTE network a cash-cow for Apple and a huge boost to revenues for the state-owned network. Negotiations might be tough, and Apple may not gain as much out of it as it may want, but it may have to bite the bullet if it wants to truly dominate the Chinese market.

China is '15 percent' of Apple's revenue. That percentage is set to rapidly increase over the 2013 fiscal year.

It could, however, still be years away, and likely will be. For now, pushing past that 15 percent mark in China will remain Apple's sole focus in the region.

For now, 15 percent is enough to add to Apple's burgeoning cash pile of more than $120 billion, an increase of two-thirds from last year's $81.6 billion at the end of the 2011 fiscal year.

A year from now, thanks to the initial push into the Chinese market with two separate deals with the second and third largest mobile carrier in the country, that 15 percent is going to look insignificant to the revenue and profit generated in this current fiscal year.

There's hope that in the coming months and quarters, Apple can secure a deal with China Mobile. Once it has that, China belongs to Apple, and the effect this will have on the rest of the smartphone market will be devastating.

Topics: iPhone, Apple, China

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.