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Why Analysts and the Media Were Wrong About the iPhone 5 in China

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On Dec. 14, Apple's (NASDAQ: AAPL  ) stock dropped about 4% on reports that Chinese consumers wouldn't be lined up for the release of the iPhone 5. Media reports over the weekend showed Apple stores minus the traditionally long lines of customers -- yet the weekend saw the sale of 2 million iPhone 5s in China. Let's take a quick look at why some thought the iPhone 5 launch would fizzle in China, and what Apple's prospects look like in the country.

Riots for the 4S, haters for the 5
When the iPhone 4S launched in China back in January, demand was so high that many Apple stores sold out of the phone. One store in Beijing couldn't open because too many people were waiting outside. To make matters worse, Apple suspended phone sales in stores because of scalpers, leaving customers with an online-only purchase option.

Contrast this with media reports over last weekend, which showed barren Apple stores. Early stories speculated that iPhone 5s weren't flying off the shelves. To be fair, those reports were partly correct. Chinese customers typically buy no-contract phones, and no-contract iPhone 5s weren't selling like hotcakes. But these articles missed the real story: the number of iPhone 5s being sold with a carrier contract.

Altogether, Apple sold 2 million iPhone 5s, which is more than the 4S back in January (although Apple hasn't said how much more). The number of preorders through China Unicom, one of the iPhone's carriers in China, jumped to 300,000 for the iPhone 5, compared with 200,000 for the iPhone 4.

The media reports may have stemmed from analysts' gloomy projections of iPhone 5 sales in China. Both UBS and Citigroup  put out statements saying they didn't expect the iPhone 5 to do as well as the iPhone 4S in China. Part of their skepticism may have come from seeing Apple lose ground this year against competitors there. Apple fell from the second-largest smartphone shipper in China earlier this year to the sixth-largest in Q3, according to a report by Canalys.

Apple does face some tough competition in China, not just from local companies, but also from Nokia's (NYSE: NOK  ) Lumia 920T smartphone. The Lumia 920T is on China Mobile's (NYSE: CHL  ) network, which has about 700 million total customers and is the best-selling smartphone on Amazon China right now. Nokia just announced last week that it's adding three more Windows 8 phones on China Unicom (NYSE: CHU  ) as well. So while there's some reason analysts may have suspected slower sales for the iPhone 5 than the 4S, a few of them simply misjudged China's demand for the iPhone and got it wrong.

The big picture
Investors shouldn't be worried that Apple will go wrong in China. Since January, the company has opened five new stores in China, for a grand total of 11, including its Hong Kong stores. Remember that a majority of Apple's products are manufactured in the country, so it knows how to do business over there.

The media has reported extensively about a possible deal to bring the iPhone 5 to China Mobile's network. A deal with China Mobile could mean a big boost in phone sales later in 2013. But if the two can't reach a deal, it will certainly hurt iPhone sales in the China. You can bet that Apple knows how important a deal with China Mobile is, so investors should keep watch to see if the two companies can work something out.


There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2012, at 8:18 AM, applefan1 wrote:

    Maybe the analysts and members of the media that were incorrect in their misstatements should make a public apology and do their homework better before they put their foot in their mouths so this doesn't happen again. The media and analysts have a profound impact on how people make decisions on what products to buy or not buy, and what stocks to invest in, etc.

    If the media and analysts continually "get it wrong", maybe they shouldn't be in their current position of being able to have their misleading information published.

    I think the CEO's of the respective companies should remove employees that publish misleading information since those employees may not have the mental capabilities to do their job properly.

  • Report this Comment On December 25, 2012, at 12:40 AM, Asherlev wrote:

    Another example of a poorly written, poorly reasoned article on the Fool. You claim analyst are wrong to say Iphone demand is weak in china because they sold 2 million in a weekend. Well in a country of over a billion the fact that they sold 60% less than in a country of 300 million seems like pretty weak demand.

    One of your own facts seems to disprove your entire thesis "Apple fell from the second-largest smartphone shipper in China earlier this year to the sixth-largest in Q3, according to a report by Canalys." Seems like pretty weak demand to me.

    You also seem to think that lower demand when caused by tougher competition isn't weak demand. How can I say this nicely? Weak demand no matter the cause is still weak demand!

    You also mention the extensive reporting of a deal between China mobile and apple except the only extensive reporting I've seen is the extensive reporting of how China mobile would not be carrying the iPhone because of their weariness of apple's unfair business tactics. Which means if apple does eventually get a deal done it will be at a less beneficial stance than they are used to.

    Since this article (I assume) was supposed to advocate buying apple stock I would have to say you failed miserably. Not that you should logically be advocating that anyway.

  • Report this Comment On December 25, 2012, at 12:49 AM, llIlllIlllIlllIl wrote:

    Why include Hong Kong in China's store count? Ridiculous. In any case Apple has and will continue to be a spectacular failure in China.

  • Report this Comment On December 25, 2012, at 12:45 PM, Same1234 wrote:

    Wall Street analysts have been standing by an Apple’s side when AAPL stock price above $500 per shr. In retrospect, how many analysts, bankers, fund managers,-- etc came out and raced to raise AAPL stock price target from $700 per shr to $1000, $1001, $1100, $1200, even as high as $1500 per shr not too long ago through all possible media channels. At that time I did not see that too many Apple investors or traders complained about why analysts and the media were wrong about the Apple missed ESP recently,iPhone 5 which had a map fiasco, no innovation compared to Iphone 4.

    Franking speaking, I do not worry about analysts downgrade or upgrade any specific stock or media is bashing any stock because I do my own research and follow several greatest investors’ visions, strategies to buy stocks at the distressed price. Several of the wisest investing maxims ever uttered are said to have come from late Sir. John Templeton who advised:

    1. buy when others are despondently selling and sell when others are avidly buying requires the greatest fortitude and pays the greatest potential reward.

    2. Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.


    When analysts raced to raise AAPL stock price target over $1000, $1001, $1100, $1200, even as high as $1500 per shr. Did you ask yourself this very easy and simple question? Where is AAPL stock price state (pessimism, skepticism, optimism, or euphoria)? History of examples can be found from time to time. As for Apple Iphone 5 sales in China, it is still a good demand but Wall Street analysts fear that sales may not meet or exceed their expectations.

    Just FYI, you can read actual consumers bought each model device after they review each product of Nokia, Apple, Samsung smartphones (Chinese website below). In addition, you can click iPhone 5 shown more detail % bought on iPhone 5, iPhone 4 respectively. It holds true for Samsung.

    I have no idea or knowledge how reliable or accurate these consumers bought % data, just for your reference.

    浏览过该产品的人最终购买了( translation in English, How many consumers actual bought each model device after they reviewed, or tested samples in a store).

    50.9%买了(50.9% bought):Nokia/诺基亚 920约4472.00元 (ASP in RMB 4472)

    5.8%买了(5.8% bought):Apple/苹果 iPhone 5约4721.00元 (ASP in RMB 4721)

    2.6%买了(2.6% bought):Samsung/三星 GALAXY Note II约3569.00元 (ASP in RMB 3569)

    On the other hand, now let’s take a hard look at Nokia’s story. Analysts downgrade NOK stock just like there is no tomorrow. So I ask myself where NOK stock price state is (pessimism, skepticism, optimism, or euphoria).

    Obviously, after China Mobile could not reach agreement with Apple in both iPhone5 incompatible with its home grown TD-SCDMA 3G network and Apple's business model, China Mobile finally obtained a full support of 3G high-end smartphones from the Finnish Telecom giant, Nokia. With a humble attitude towards China Mobile (Chinese Government), Nokia made an intelligent decision to cooperate with China Mobile, designing the Lumia 920T fits in with China Mobile's home grown TD-SCDMA 3G network. Luckily, Nokia put a giant step forward to compete with a high-end smartphone market share among Apple, Samsung in China with the help of China Mobile and China Union. Under the traditional Chinese culture of a close cooperation and relationship between two companies, you scratch my back and I scratch yours, without any shadow of doubt, China mobile will promote Lumia 920T such a good example as promoting each different provincial subsidized package if needed (see below website in Chinese link) and help Nokia gain market shares with all efforts.

    Go China Mobile! Go! Let all Chinese people have an opportunity to enjoy Nokia Lumia 920T with a variety of subsidized plans. In particular, those middle working class can pay as low a down payment as 1 Yuan (RMB) with a new 2-year contract commitment or wealthy consumers pay it in full off a contract. It is a win- win plan for Nokia, China Mobile, and Chinese consumers.

    In my humble opinion, China Union and China Mobile will help Nokia Lumia 920, and 920T respectively, gain market share in China. Even better, Chongqing mobile (重庆移动公布Lumia920T合约套餐) offers 4 subsidized plans (or contract packages) for Lumia 920T (see below in both original Chinese post, English translation).

    Customers are willing to sign a new 2-year contract agreement with Chongqing mobile, they can choose 4 different plans below. The lowest cash requirement from customers’ pocket is only 1 yuan for the Lumia 920T but they must pay minimum monthly charge 388 yuan for a 24-month contract commitment. However, the more down payment customers can afford, the less minimum monthly charge they will pay.

    Below is a Shanghai mobile Lumia920T contract package details (12 subsidized plans.

    Shanghai mobile offers 200 Yuan gift shopping card when customers sign a new 2-year contract commitment before December 31 to buy Nokia lumia920T (Currently only in black available). Shanghai mobile also offers 5 packages for free Lumia 920T (zero initial cash from consumers’ pocket) corresponding with 5 different minimum monthly charge packages in an increment of 100 RMB of each tier moving up. The lowest minimum monthly charge is 58 Yuan along with an initial cash down payment 3903 Yuan for Lumia 920T in a 2-year contract commitment.

    I am long NOK.

  • Report this Comment On December 26, 2012, at 12:32 AM, InvestingnSport wrote:

    Billionaire investor and businessman Mark Cuban, who owns NBA team Dallas Mavericks, swaps iPhone 5 for Nokia Lumia 920.

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