Apple's Down in China, but Far From Out

Samsung recently took the top spot for smartphone market share in China, leaving Apple (NASDAQ: AAPL  ) behind in the No. 3 spot. Apple may not be king in the largest smartphone market in the world, but its profits, and demand, speak for themselves in the country.

Who's who in Chinese smartphones
Samsung's whopping 30 million smartphone sales in China last year deserves a tip of the hat. The company surged from 10.9 million sales in 2011 to 300% increase in 2012. But despite the huge sales gain, the company took only an additional 5.3% of the smartphone market share. Granted, that was enough to stay ahead of Apple, which currently holds 11%. Here's the breakdown of smartphone market share by sales.

Source: VentureBeat.

While it's obvious Chinese consumers are willing to put a Samsung device in their pockets, investors can look beyond market share to some more concrete numbers: revenues.

In 2011, Apple's sales in China were $4.08 billion. In 2012, that number increased by 67% to $6.83 billion. That's a significant increase in sales in the region, considering its growth in North and South America was 15% and 13% in Europe. But one of the most important facts to remember is that Apple isn't even on China's largest mobile network, China Mobile (NYSE: CHL  ) . Samsung and Lenovo, who lead in smartphone sales market share, both have deals to sell phones on China Mobile. Meanwhile, Apple has managed to claim the third spot without any deal with the company -- but it's coming.


Source: Apple.

Apple wants its iPhone available to China Mobile's 700 million customers, and China Mobile wants to officially offer the coveted and social status-raising iPhone. As China Mobile's 3G network grows, both companies cannot wait much longer to strike a deal. At the 2012 China Mobile Worldwide Developer Conference, the company's president said about working a deal with Apple: "Technology is not a problem, [it's] mainly about business model and benefit-sharing issues." It's high time Apple and China Mobile worked out some sort of deal.

As of this time last year, about 15 million China Mobile customers used their unlocked iPhones on the company's 2G network. With millions of Chinese consumers already unofficially using new iPhones on China Mobile's network, it shows how much demand there is for a China Mobile iPhone.

Morgan Stanley analyst Katy Huberty said last month that Apple could add $2.4 billion in iPhone revenue and triple its customer base in China if the company debuted an iPhone "Mini". No one knows whether or not Apple will release a cheaper iPhone in China, but we do know that Apple won't let an opportunity like China Mobile pass by. With Apple focusing much of its attention on the country, a deal with China Mobile is the next logical step to building its presence in China.

Taking it slow
Some investors may not like the pace Apple's moving at with China Mobile, but the Apple is content to let some market share slip, while trying to make deals that will bring in the biggest profits. Investors should pay close attention to Apple's growth in the country, as well as iPhone demand from Chinese consumers. Apple is a status symbol in the country, and if it can tap into that with China Mobile, then it could bring huge rewards for the company -- and patient investors.

CEO Tim Cook's frequent visits to China, and his meetings with China Mobile, should be an encouraging sign that Apple's pursuit of the country is just getting started. Many Western markets are reaching high-end smartphone saturation, but China still has a long way to go. Even if Apple doesn't release a cheaper iPhone for the Chinese masses, a deal with China Mobile may be enough to boost profits even higher and take a larger piece of the the market share.

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 over 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 your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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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 March 12, 2013, at 10:59 PM, saylestx wrote:

    I have dealt with Apple in China. As soon as they get rid of the corrupt sales stores. They may make some inroads into China. Example; my phone was under waranty and they (the Apple Authorized service in Qingdao) wanted me to pay 1000RMB to fix it. I refused, and immediately called the Apple Service in the USA and they contacted the Apple Store in Shanghai which took care of my problem. The Shanghai service rep said unfortunately they know smaller Apple Service Centers do this. Much to my dismay, they know it but do nothing about it unles someone complains. Apple needs to take control or it will completely lose out on 1.4 billion customers.

  • Report this Comment On March 14, 2013, at 5:02 AM, riwaterman wrote:

    Your math appears to be incorrect.

    "Samsung's whopping 30 million smartphone sales in China last year deserves a tip of the hat. The company surged from 10.9 million sales in 2011 to 300% increase in 2012. "

    To calculate percentage increase

    (30-10.9)/10.9 x 100 = 175.23 % not 300%

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