iPhone in China - What It Will Mean

Why isn't the iPhone in China yet?

After months of failed negotiations between Apple (Nasdaq: AAPL) and China Mobile (NYSE: CHL) – the largest mobile service provider in the world in terms of subscribers – the companies parted ways.  And since then we haven’t heard much from Apple with respect to moving the iPhone into China.  Some may have assumed, incorrectly, that Apple was just going to ignore the issue for the time being.

But after Apple’s announcement on Monday, I think it’s clear that while negotiations between the two companies may be at a standstill, they won’t stay that way for long.

The Chinese wireless market is by far and away one of the most desired mobile markets on the planet.  This is a country with roughly 1.4 billion citizens and not even half of them have a mobile phone yet.

There’s a tremendous opportunity for growth here and Apple knows it.

So while a deal hasn’t been reached to bring the (genuine) iPhone to China yet, Apple’s definitely gearing up for it.

At Steve Jobs' keynote the other day he presented the world with “iPhone 2.0”.

Aside from the widely covered feature additions like 3G wireless technology, GPS, reduced price point, etc., Apple unveiled a feature that I personally jumped out of my seat for, and it’s geared directly for the Chinese market.

Texting and E-mailing in China

Having lived in China for a period of time I can attest to the difficulty in sending Chinese text messages and e-mails from a mobile phone.  Typically you’ll have to type the message using a spelling system known as pin-yin.  Pin-yin is the transliteration of Chinese words into westernized spelling.

So if I wanted to type “hello” in a text message, I’d have to type “ni hao” using a western keyboard and that would then be translated into the appropriate Chinese characters.  Obviously the use of a stylus would make things much easier.  In fact, that’s exactly what Motorola (NYSE: MOT) had in mind when they launched the Motorola Ming in China two years ago.

And that’s precisely what Apple had in mind when they launched their Chinese character recognition software on Monday.

With the latest version of the iPhone I can use my finger to write out Chinese characters directly on the screen.  This will make writing text messages and e-mails dramatically faster.

So the real question becomes, what would it mean for Apple’s business if it secured a significant share of the Chinese handset market?

Well, let’s look to the Motorola Ming for an indication of what may be in store for Apple.

The Ming and Market Share

Estimates vary but the consensus is that the Motorola Ming had roughly 1% of the entire Chinese handset market at the beginning of 2007.

Given that China has a mobile subscriber base of 583.5 million people now, that would mean 5.8 million phones by today’s numbers.  It would be easy to make the argument that the iPhone has much more hype, demand, functionality, etc. built around it and therefore could reasonably capture more of the market than the Ming, but let’s be conservative here.  Let’s assume Apple is able to sell 5.8 million iPhones in China.

If Apple sticks to their $200 price point for the 8 GB model – which is certainly realistic considering the Ming’s price point was in the upper $400’s – then that would equate to roughly $1.16 billion in additional top line revenue for Apple.

And if you consider the “halo” effect Apple’s products tend to have (sell one product, you sell more of the others), then it’s easy to see how substantial adoption of the iPhone could turn China into an increasingly important source of revenue for Apple overall.

Comments

[mrtaxx]

The iPhone may sell for $199 but Apple gets more like $399 for the iPhone, so the income to Apple would be double what the writer of the article said or $2.32B. ATT pays Apple the $200 difference. AS far as I know Apple doesn't discount it's products sold by their partners.

I can't believe the errors that seeking alpha writers continuously make, get your facts straight. They get paid to write these articles, where do I sign up?

[wallawallabingbang]

Apple is providing NO DISCOUNT on the handsets!

[charanischiuHK]

Chinese hand writing recognition program is a must for smartphone operate in Mainland China, Hong Kong/Macau SAR as well as Taiwan, since not many chinese people know the pin yin method to enter chinese characters into the phone. Everybody knows direct hand writing.

Beside there should also be a widely use simple chinese characters program together with the traditional chinese characters which is basically used in Hong Hong/Macau SAR and Taiwan.

When will 3G iPhone launch is Taiwan anyway?

[zawy]

People don't usually get paid for the seeking alpha articles they submit. They're just Joe Schmos

[Toni]

I just had an hard-on reading this.

[who]

much depends on the cost of 3G or similar package that will be required for getting the $200 phone. people who can afford a iphone don't care about price but status symbol of the iphone that it provides

most PRC users are low rate users and the mix will increase as the market expand to include rurual users which are using lower end no frills packages - not your typical users of iphones.

[samij]

here's a tip for you: check the state of 3g networks in china. might be worthwhile...

[DanButterfield]

China Mobile and China Unicom are in the hunt for an iPhone deal. 3G licenses have yet to be issued in China. This may happen soon after the Olympic games. It is most probable the China Mobile will run TD-SCDMA and China Unicom W-CDMA. The iPhone 3G will support W-CDMA however it will not support TD-SCDMA. iPhone 3G will be backward compatible to China Mobile's GRPS/EDGE network and there is a fair chance that China Mobile will also be granted a W-CDMA license.

More here on iPhone in China:
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idannyb.wordpress.com/.../
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idannyb.wordpress.com/.../

[MightBuyOneNow]

CNBC's Jim Goldman's interview with Steve Job's clearly states "that you'll see announcements" later this year regarding China. Why do we still talk like it's "iffy", he wouldn't be making statements like that on such an important topic unless they know that is the case.

www.cnbc.com/id/158402...

[AI]

Actually, the pinyin input system is much faster than writing out characters by hand. The problem, as the auther and several others have pointed out, is that not all Chinese know pinyin. So the inclusion of Chinese handwriting recognition makes the iPhone accessible to a larger portion of the mainland population, as well as to residents of Hong Kong and Taiwan.