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.
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