Apple rocks China: Can it outrun counterfeiters?

Apple rocks China: Can it outrun counterfeiters?

Summary: Apple may be the rarest of U.S. tech companies---one that can make gobs of money in China sans excessive counterfeiting. The big question is how long Apple can enjoy its Chinese honeymoon.

TOPICS: China, Apple, Browser

Apple may be the rarest of U.S. tech companies---one that can make gobs of money in China and not have to worry excessively about counterfeiting. The big question is how long Apple can enjoy its Chinese honeymoon before counterfeiters start eating into the bottom line.

If this blog post is to be believed Apple's counterfeiting woes may just be beginning. BirdAbroad has documented a stunning knockoff of an Apple Store. Yes, the whole store.

But first let's get to the big picture and how Apple's massive sales in China and knock-off goods are on a collision course.

The biggest---yet most overlooked---point on Apple's fiscal third quarter earnings conference call (statement, Techmeme) were comments about China from CFO Peter Oppenheimer and operating chief Tim Cook. Simply put, Apple's future lies in emerging markets like China and Brazil. These regions had been off limits for the most part.

Sure, Apple has new MacBook Airs and OS X Lion, moves millions of iPhones and exceeds enterprise and consumer expectations on the iPad, but the real story is China. Cook said:

China was very key to our results. As a reminder, for Greater -- we define Greater China as Mainland China, Hong Kong and Taiwan. Year-over-year it was up over 6 times. And the revenue was approximately $3.8 billion during the quarter, and that makes the year-to-date numbers through the three quarters that we have had thus far around $8.8 billion. So this has been a substantial opportunity for Apple. And I firmly believe that we are just scratching the surface right now. I think there is an incredible opportunity for Apple there.

The comparison to Apple in China is Microsoft. Microsoft makes little money in China due to piracy. Microsoft CEO Steve Ballmer stumps for intellectual property reform in China and pitches quality over knock-off PCs. Good luck with that one Mr. Ballmer. The reality: Microsoft pulls in less revenue from China than it does in the Netherlands.

If you take Apple's figures at face value it appears that the Chinese actually buy that quality argument when it comes to the iPhone and iPad. In other words, the Chinese consumer wants the real Apple over a knock-off.

I have a few eyes and ears in China. A friend of mine is regularly in China as a buyer for a major retailer. He's also a geek's geek. And yes, he comes home sometimes with full versions of Adobe PhotoShop for $5 and every Nintendo DS game you can fit on an SD card for a couple of bucks. As he handles headaches like moving plants inland and dealing with factory shutdowns because the Chinese power grid is a mess, he also notices nothing but iPads on the train.

He's not stunned by the number of iPads on these trains inland as much as the fact they are real. "These people are actually buying the real thing," said my pal, a diehard Apple fan. You can find a knock-off iPhone here and there, but for the most part Apple sells a lot of real phones and tablets.

Piper Jaffray analyst Gene Munster said in a research note that China is crucial to Apple's future growth. Munster said:

We believe that Apple will extend its experience in China into India, Brazil, and other key emerging economies in the coming years. Between China, India and Brazil, Apple is just beginning to find success in selling to 40% of the world's population.

Cook added:

I am not saying at all that we have figured out precisely how to play perfectly in the environment, we haven't. I think we have more to do and more to learn, but I feel very, very good about our progress there. I think if any of us would have been told a year ago that we would do $3.8 billion in Greater China in a quarter, I don't think very many of us would have believed it. And I don't think any of you would have believed it. So we feel very, very good about it.

How long will this success last? Perhaps not for long unless Apple gets its arms around potential counterfeiting. The BirdAbroad blog, run by a 27 year old woman living in Kunming, documented Apple stores in Kunming. As you know, Apple just opened stores in Beijing and Shanghai.

From the BirdAbroad blog:

You have already guessed the punchline, of course: this was a total Apple store ripoff. A beautiful ripoff – a brilliant one – the best ripoff store we had ever seen (and we see them every day). But some things were just not right: the stairs were poorly made. The walls hadn’t been painted properly.

Fake Apple store sign, Credit: BirdAbroad

Fake Apple store sign, Credit: BirdAbroad

Apple never writes “Apple Store” on its signs – it just puts up the glowing, iconic fruit.

The pictures on the BirdAbroad blog highlight some nice touches of a blatant rip off of an Apple store. Apple's job will be to shut down the stores. But the rip-off stores are probably just the tip of the iceberg. Apple is likely to have a lot more counterfeit fires to put out as it enjoys crazy growth in China. Those profits are only going to attract more con artists.


From CNET:

Topics: China, Apple, Browser

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  • Well....

    It does makes sense. Microsoft is software only [except for keyboards,micr and webcams]. Apple has everything, but you can't legally install OS X on non-Apple hardware.
    This could change. I can see someone there selling of PC claones with a hacked OS X.
    Gis Bun
    • RE: Apple rocks China: Can it outrun counterfeiters?

      @Gis Bun
      From what I see, most Chinese users that use Apple computers install WindowsO/S on the device. The popularity right now is with Iphone and Ipad.
      • RE: Apple rocks China: Can it outrun counterfeiters?

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  • Not a totally fair comparison

    "If you take Apple?s figures at face value it appears that the Chinese actually buy that quality argument when it comes to the iPhone and iPad."

    In what way is a pirated copy of Windows 7 lower quality than a genuine copy of Windows 7? Of course there is no quality difference of the bits. Pirated bits are just as well built as genuine bits.

    So it isn't fair to suggest (if it was your intention to do so) that the Chinese don't buy the quality argument from MS but they do from Apple. The Chinese want quality from both Apple and MS. In fact, if it is only Apple's iPhone and iPad that are selling in China, it would suggest that the Chinese do not buy Apple's quality argument when it comes to desktop / laptop computers and are far happier with MS's quality argument.
    • Except they all buy or obtain counterfeit copies of Windows

      "The reality: Microsoft pulls in less revenue from China than it does in the Netherlands." Doh! Helps to read the article.
      • Wow, you are so rude!

        @GoPower <br>I did read the article. Did you read my post?<br><br>I understand that most copies of Windows in China are counterfeit. My point was that the bits on a counterfeit copy of Windows are of the same quality as the bits on a genuine copy of Windows. So to suggest that the Chinese don't buy the quality argument from Microsoft is simply false. They do demand quality from Microsoft and they get that quality, they simply don't pay Microsoft for it.<br><br>Put it another way: if gangs started stealing shipments of iPads from Apple and selling them on the streets of China, would you say that suddenly the Chinese don't buy the quality argument from Apple because they weren't paying Apple for their iPads? Of course not.
      • RE: Apple rocks China: Can it outrun counterfeiters?

        He's absolutely right. Apple is a hardware company. Their hardware also happens to run their software. But honestly, their software isn't that great. In fact, it kinda sucks.

        But their *hardware* is beautiful. And it works perfectly *with* their software. And you can make a fake iPhone, but unless you're willing to spend big bucks on it, it will feel like a knockoff.

        A pirated copy of Windows 7 is Windows 7.
        x I'm tc
      • RE: Apple rocks China: Can it outrun counterfeiters?

        @GoPower <br>microsoft had done this before and they recoup thousand fold what everybody percieved had been their losses in the early days. anybody remembers lotus 123, wordperfect, etc. well, m$ let the people of the world drink their cool aid for free for awhile, then they use the BSA to descend on those PIRATES and forced them to pony up or stop drinking their cool aid. if you have millions and/or tons of documents in m$ format, it would be cheaper to pay than convert. so forget lotus 123, wordperfect, etc and welcome m$ world of domination. and as for apple, they should have learned their lesson when they tried to "NUKE" taiwan for pirating apple ii. hp and others did the reverse, they embraced taiwan and expand their market in asia. the moral, don't discount the power of the chinese emerging market, because before you know it, the u.s. err apple will have the biggest foothold in china, just like m$ iron grip in os and documents. oh, before i forget, asians particularly the chinese at the present time are prudent and very happy with minuscule profit but big volume. remember how the japanese cornered the us market from electronics to cars. many us companies sued japanese manufacturers when they were just starting, but look at them now (the japanese, ain't they beautiful people and very smart).
  • Nothing new

    Cisco has battled counterfeiters that brazenly duplicated a factory a few years ago. The only way to tell the difference between the real cisco product and the counterfeit was that the counterfeiters addressed a bug in their ios code.
    Your Non Advocate
  • China made millions of phoney Apple IIe 30 years ago

    They will make fake Airs and iPads because there will be money in it.
    • RE: Apple rocks China: Can it outrun counterfeiters?

      @balsover But these will not connect to iTunes I believe? The point is, Apple is selling an ecosystem which ultimately resides in some servers in a US server farm owned by Apple. I don't see how the Chinese can counterfeit this.
      The Star King
      • RE: Apple rocks China: Can it outrun counterfeiters?

        @The Star King : maybe they will do the world a favor and find away to bypass iTunes. :-)
        Gis Bun
  • RE: Apple rocks China: Can it outrun counterfeiters?

    That comparison with Microsoft was completely needless. A pirated copy of Windows or Office is as good as a genuine one, no difference in quality there. That is true with any software, but in case of Hardware like iPad and iPhone, its a different matter. A counterfeit iPhone can not have same quality as a real iPhone, if it was of same quality, why that company would use iPhone brand instead of building its own brand??
    Please remember, Hardware and Software markets are completely different, Apple operates in one, Microsoft in the other.
    Raju Das
    • RE: Apple rocks China: Can it outrun counterfeiters?

      @Raju Das I see your point. But pirated copies of Windows kills Microsoft. I was talking dollars more than hardware vs. software. The question to me for software is why bother with china?
      Larry Dignan
      • RE: Apple rocks China: Can it outrun counterfeiters?

        @Larry Dignan
        Ok. But the article creates an impression that Chinese people care about quality when it comes to iPad, iPhone, but don't care for quality in case of MS Windows.

        And please remember, a pirated Windows user is not using free Linux, and potential Windows Live Services user. :)
        Raju Das
      • Why was your friend so surprised? Does he understand the difference

        @Larry Dignan
        between [b]soft[/b]war and [b]hard[/b]ware in reference to piracy?

        Software Disks can be copied using a simple CD/DVD drive, anyone with a computer can do it.

        Last time I checked, you can't just stick an iPhone into a computer and have 3 or 4 exact copies pop out, so you have no choice, you either buy the real thing, or you don't.
        William Pharaoh
      • RE: Apple rocks China: Can it outrun counterfeiters?

        @Larry Dignan <br>because soon their market together with india will be the biggest in the world. europe took tens of hundreds of years to industrialized. the us a little more than a hundred, japanese the same, taiwan, singapore, and the rest of the tigers less than fifty years. just my thought. oh, before i forget, billG threatened not to develop more software because of piracy here in the u.s. (maybe the silicon valley). am wondering if he really stopped and what could have happened...
    • RE: Apple rocks China: Can it outrun counterfeiters?

      @Raju Das I bet you have never use one of those counterfeit iPhone. Those counterfeit iPhones not only can not have same quality as a real iPhone, but in may cases, actually *better* than the real iPhone.

      One counterfeit iPhone I have seen has all the features of a real iPhone, with additional:
      1) Dual Sim card slot (makes it a great travelling phone)
      2) a TV and radio antennas
      3) swapable battery
      4) The same, if not better, battery life
      5) all with the same form factor of the original iPhone

      with some drawbacks such as bad onscreen keyboard, laggy UI, and non existed 3rd party app market/store since there's no open APIs. The newer models now uses Android so that issue has been "fixed" somehow.

      The reason why they don't make their own brand is that they're already overcrowded with so many "local brands" with similar feature sets (yeah all those things I've listed) that makes them almost indistinguishable. With all the local brands that racing the price to the bottom, it's actually more profitable to knock-off the expensive brand rather than develop their own brand.
      • RE: Apple rocks China: Can it outrun counterfeiters?

        The main reason the knockoff iPhone/iPads haven't caught on in China is APPS! The knock off phones don't have APPS. Secondly, most iPad knockoffs run android and are using resistive screens and crappy processors and they dont run APPs very well.
        I just purchased an Iphone4 Clone for $200 running Android 2.2 skinned to look like iOS and I can download apps from Android market, but it has a 600mzh chip so its pretty slow. If China continues to improve the quality of these products then Apple is in trouble, but until then Apple will rule in China.
    • RE: Apple rocks China: Can it outrun counterfeiters?

      @Raju Das
      where the heck do you think apple manufactures their products? and what quality and who are the QAs?