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

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.

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TOPICS: iPhone, Apple, China
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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.

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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

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13 comments
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  • Seriously though.....

    This article does not attempt to look at why the 78% YoY increase in revenue by Apple in China occurred and how this increase was achieved. it does not attempt to break down by apple product, which most affected the bottom line. it barely attempts to bring out what other factors may promote or hinder growth. is the 78% realizable again or would it be overtaken.?

    This article does not even try to analyze what potential customer base Apple would be selling to in order to draw conclusions. For example:

    China mobile: 700M Subscribers, 80M on 3G ~10%
    China Unicom / Telecom: 340M subscribers. is it safe to assume about 10% on 3G? Are we also looking at a potential customer base of 34M?

    This article does not mention or even attempt to take into account the head start others such as Samsung and Huawei, lenovo, huawei have within the market. it only briefly skirts this.
    This article does not even mention the recent deals by MS , Nokia, and / or HTC with these same vendors.

    It would be good to have a little bit more research and business insight when attempting to predict sales of a device as well as revenue. These are all sorely lacking from this article.

    I am led to ask on what basis are articles published on Zdnet.

    rgds
    Elrius
    • Catch title?

      Maybe he just wanted to write an article about Apple to lure lectors and comments.... you know that Apple its a click bait for fanboys and haters too.

      Anyway, the author is assuming that all the subscribers will buy iPhones, what about the people who allready got Samsung GS2 and 3, Nokia, ZTE and Huaway smartphones: will they automatically ditch their phones to get an iPhone? I doubt it...
      pepe-el-Toro
      • I saw this on CCTV the other night...umm morning the other day

        According to this, Apple is in last place in China as far as their industry is concern. Humm.

        http://english.cntv.cn/program/bizasiaamerica/20121214/103709.shtml

        (note: it may take awhile to load video due to location)
        Free Webapps
    • iPhone 5S and iPhone 6 Release Date

      I wonder why all these retailers and carriers are giving the iPhone 5 on discount prices just a couple of months after it comes out. Is it because the demand is getting low or the rumors that the iPhone 5S is in production? is Apple killing its own product by coming out them them too soon? http://pinterest.com/FindUniversity/new-iphone-5s-release-date/

      May be could be the stand on it!
      thanks!
      MarkSimon13
  • ???

    The reality on the ground is much different from the wet dream described above. It's easy to pretend that Apple stands to gain huge numbers in the years to come when you bloggers continue to fail to realize just how small Apple's true potential user base really is in China.
    eMJayy
  • ipad

    What this article says is so good. Since iPad was born 3 years ago,many accessories,like keyboard cases,were born for iPad. E.G. Logitech iPad Keyboard and Clamcase iPad Keyboard Case are both pretty cool,yet not nood enough and way too expensive. The latest Sharksucker Keyboard Case for JSXL Technology is a great alternative with high quality and good price.
    harshan1
  • Dosnt seem as for now they are doing as well as you make iut seem to be..

    http://wmpoweruser.com/apples-share-price-collapse-after-chilly-iphone-5-reception-in-china/
    rruffman1
    • I Gave You An Upvote...

      ...though, seeing as how that came from a pro-Microsoft site, it does rather seem like people in the water making fun of those still on the sinking ship...
      ldo17
  • iPhone Craze

    I wonder why all these retailers and carriers are giving the iPhone 5 on discount prices just a couple of months after it comes out. Is it because the demand is getting low or the rumors that the iPhone 5S is in production? is Apple killing its own product by coming out them them too soon? we at www.iphone5sreleasedate.com think so.
    DownloadXOrg
    • You = Shameless Self-Advertising

      Not very good clickbaiting either.
      zhangkhaien
      • A source from China

        This sheds some light on this as well. Apple IMO are killing themselves slowly.

        http://english.cntv.cn/20121211/100810.shtml

        (note: it may take awhile to load due to location)
        Free Webapps
  • Hmmmm

    Maybe sales in the US for the iPhone 5 have died and they are setting their sites on Chinas which has mostly been Android friendly.
    Gisabun
  • Well at least somebody is buying "domestically manufactured goods"

    Let's not forget the BIG PICTURE: In China, as in the United States, owning an Apple iPhone is relegated to the rich and high income technocrats. For the vast majority of Chinese citizens, owning an iPhone is nothing more than a distant fantasy, if they even want one at all, as it is for most Americans, despite marketing and advertising.
    anthonymaw