BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Apple May Need Cheaper Phones To Compete In China

Following
This article is more than 10 years old.

Image via Wikipedia

Apple has been actively suing competitors like Samsung and HTC among others to protect its interests in the U.S. as well as outside markets. So far, the company has limited itself to developed countries such as the European and Australian markets.

However, seeing the immense potential of a growing smartphone market in China, Apple is focused on increasing its penetration in this market. Threatened by such a possibility, a number of Chinese handset makers including Lenovo, ZTE, TCL, Coolpad and Konka have formed an alliance to counter the threat and strengthen their patent portfolio. [1]

See our complete analysis of Apple here

China: The next smartphone hub

According to latest 2011 Q3 figures released by Strategy Analytics, China has leapfrogged U.S. to be the world’s largest smartphone market by volume. [2] This is due to the sheer weight of the country’s population.

Click here to get a New Special Investment Report From Forbes’ Top Gurus: 50 Best Ideas for 2012.

However, smartphone penetration was only around 15% in China in 2010. As the country grows and the average Chinese sees an increase in buying power, we expect the demand for smartphones to increase meaningfully. Even Apple’s CEO Tim Cook acknowledged the immense potential that China presents when he said during the last earnings call that the country was Apple’s fastest growing region by far and that the company was doing everything it could to market its brand in China.

The iPhone has already been launched on China Unicom, and there are plans to launch it on China Telecom and China Mobile as well.

However, the Chinese telecom industry appears to be trending towards cheaper smartphones as opposed to the higher-priced ones from Apple, Samsung and Nokia. Chinese wireless carriers have already started actively promoting smartphones at up to CNY 1,000 ($158), according to recent reports. (see Chinese Telcos Look to Boost Margins With Cheaper Smartphones) These smartphones will be provided by Chinese handset makers such as ZTE, Huawei, Lenovo, Coolpad, TCL and SED.

Since a majority of Chinese still cannot afford to pay for the higher-end smartphones, this strategy will reap huge dividends for these Chinese manufacturers.

Special Offer: For a limited time only, save 15% on any of Forbes Newsletters premium investment advisories. (Prices on site reflect discount.)

Cheaper iPhones for China?

This will undoubtedly pose an interesting question for Apple. It may have to eventually price its iPhone lower for the Chinese market, but meanwhile, it will fall back upon its long-time strategy of suing rivals over patent infringement to temporarily stop their advance.

Apple has sued Samsung in many countries and it has been particularly aggressive in select European countries such as Germany, France and Italy where it has coincidentally ceded ground to Android as well.  On the other hand, with the iPhone performing quite well in the U.K., the country has so far drawn little litigious attention from Apple. [3]

So far Apple has not filed suits against Chinese manufacturers though Microsoft and Nokia have. [1] Microsoft has already asked companies such as Huawei to pay royalties and Nokia has filed patent lawsuits against some handset makers.

Having identified China as a significant area of growth, it will not be long before Apple joins the fray more seriously. However now that Chinese manufacturers have formed an alliance, this could make it more difficult for Apple to single any one manufacturer out for patent infringement.

If Apple fails to impede the growth of Chinese manufacturers with lawsuits, it may be forced to lower the prices of its mobile devices sooner than expected.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:

  1. China market: Handset makers form alliance to counter possible patent infringement lawsuits, DigiTimes, December 30th, 2011 [] []
  2. China in Smartphone Lead, WSJ, November 24th, 2011 []
  3. ref:3 []

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.