Apple makes mark in China

20 January 2011

BEIJING: Apple, the consumer electronics specialist, has enjoyed "phenomenal" growth in demand among Chinese shoppers keen on gadgets like the iPad and iPhone.

The Cupertino-based firm reported sales in Greater China - mainland China, Hong Kong and Taiwan - hit $2.6bn (€1.9bn; £1.6bn) during the last quarter.

This was four times the total from the same period in 2009, and can be measured against the figure of $3bn recorded throughout the whole 2010 fiscal year.

As with most multinationals, Brazil, Russia, India and China, collectively known as the BRICs, have long been on Apple's radar.

"Of the BRIC countries … we, several years ago, identified China as our top priority, and we put enormous energy into China," Timothy Cook, Apple's chief operating officer, said on a conference call. "And the results of that have been absolutely staggering.

"We're introducing a lot of people to Apple who previously had not been introduced to the company, and I think that helps across the product line," he added.

Apple has outlined plans to expand its local retail network to 25 branches by the end of this year, having seen impressive recent returns.

"Our four stores in China were, on average, our highest traffic and our highest revenue stores in the world," said Peter Oppenheimer, Apple's chief financial officer.

Another initiative implemented in 2010 was launching an official Chinese ecommerce platform, accepting payments from 22 banks, and Alipay, a system similar to PayPal run by Alibaba.

The advantages of such a strategy include extending its reach outside major metropolitan hubs like Shanghai and Beijing, meaning shoppers in second and third tier cities are able to buy genuine Apple goods.

China Unicom is the only telecoms provider currently offering the iPhone on a contract basis, and the carrier boasted 12.8m 3G subscribers in November 2010, lured in particular by faster data download speeds.

In response, China Mobile, which has 18.8m 3G users, could create greater numbers of wireless hotspots, as it attempts to reduce the risk of consumer defection.

"The competition in the 3G market is very fierce," Wang Jianzhou, China Mobile's chairman, said earlier this week. "We will be adding a lot more hotspots and access points in areas with high population density."

Goldman Sachs has predicted China Mobile's domestic 3G market share may dip from 44% in 2010 to 40% in 2010, while China Unicom posts gains from 31% to 33%.

"China Mobile is worried its higher-spending customers will turn to Unicom," said Kelvin Ho, an analyst at Yuanta Securities. "They are more aggressive than before in terms of Wi-Fi rollout and coverage."

The rising uptake of tablets such as the iPad in China will also pressurise providers to enhance 3G services, said Paul Wuh, an analyst at Samsung Securities.

"If people with smartphones or iPads or iPhones want to surf the Web and don't want to switch to China Unicom, Wi-Fi is one way that China Mobile can help them get around that," he argued.

Data sourced from Seeking Alpha/Bloomberg; additional content by Warc staff