There's Trouble Brewing for Apple in China

Things haven't been working out for Apple (NASDAQ: AAPL  ) in China these days. 

Shares of the consumer tech giant fell 3% yesterday -- falling to levels last seen in late July -- after The Wall Street Journal reported that China Telecom (NYSE: CHA  ) was cutting the subsidies that it pays to make the costs of Apple's smartphones more manageable. 

The iPhone 5s is being sold on the wireless carrier's website at a two-year contract price that translates to roughly $392. That's 27% higher than last year's iPhone 5. This would be news to cheer Apple investors if it was the one commanding the markup, but it's just a grim sign that Apple's devices aren't likely to sell in large enough numbers this cycle to warrant heavy subsidizing.

Apple's prospects in China seemed to be on the rise ahead of last week's iPhone event. Scheduling a press event in Beijing just hours after its stateside reveal seemed to suggest that the class act of Cupertino would finally be striking a deal with China Mobile (NYSE: CHL  ) and introducing the cheaper smartphone line that would woo mainstream wireless customers worldwide. 

It wasn't to be on either front. China Mobile has still not officially started offering the iPhone. The iPhone 5c also isn't the "cheap" device that the market was expecting. The unsubsidized price of $549 domestically -- and a steep $733 in China -- won't make the device any more compelling than the prior year's model that Apple keeps around at $100 less than the new incarnation.

It gets worse.

China Unicom blogged about taking in excess of 100,000 iPhone 5s and iPhone 5c reservations as China's second largest carrier. That's less than half of the preorders it received during the first two days of iPhone 5 availability last year. 

China isn't all that different than the rest of the world, embracing Google's Android as the platform of choice. Apple may be second fiddle to Samsung here, but in China there are six companies selling more handsets than Apple with Android being the mobile operating system of choice. Apple's share of the market is now down to 5%, and that's not likely to grow with even pricier phones this time around. 

Apple's decision to ignore the entry-level market and its inability to strike a distribution deal with China's largest mobile carrier aren't the end of the world. The deal with China Mobile can still come around, and you never know if Apple comes through with a price cut on its 5c line if they're not selling briskly. We don't have to wait until next year to see if Apple can get it right with the next generation. However, all the buzz that Apple and its stock were building through August and September has gone away. We're back to where we were in late July, only this time lacking the hope that Apple will get it right with this year's iPhone lineup to rock the world.

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Read/Post Comments (8) | Recommend This Article (7)

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 September 17, 2013, at 6:44 PM, JokerJoey wrote:

    Check John Paczkowski's excellent article at All Things D. Sorry (actually I'm not), but you're incorrect on this entire article, which unfortunately is kind of par for the course when it comes to the Fool and Apple lately....sigh....

  • Report this Comment On September 17, 2013, at 6:51 PM, DanManners wrote:

    Last year China went on sale in December when the phone shortage was less. Apple is once again short phones and they will have to share with everyone else. Yields are low on the fingerprint sensor so Apple probably had to allocate less phones per location. I dont think you can compare the same as last year.

    That being said, Apple is going down to 200 and soon. Cook needs to get fired now.

  • Report this Comment On September 17, 2013, at 6:57 PM, DPRStock wrote:

    The 100000 you are referencing is incorrect. That was a figure released on preregistration not pre-orders. The real figure as to preorders should be out soon due to the fact the day is just now closing in china for sept 17.

  • Report this Comment On September 17, 2013, at 6:58 PM, JAVKO wrote:

    No matter what Apple does, the WS crooks, like yourself, are on the take from Samsung to bash the Co.

    If a reseller lowers the downpayment, you say it is not selling and there is no demand!

    If a reseller increases the downpayment, you say it is not selling and there is no demand!

    If they release a cheap iPhone, the argument would be lower margins!

    if they don't, then there is market share to bash!

    How much is Samsung paying you mercenaries?

  • Report this Comment On September 17, 2013, at 8:08 PM, FreeRange1 wrote:

    Where do these clueless people come from that write for MF? This "article" is ridiculous. Demand in China is going to be huge, and the China Mobile deal is done but not announced and the phones offered already have the radio for their new LTE network - this is a new blockbuster opportunity for Apple with their 740 MILLION users. Anyone who follows this company closely knows this, and you are supposed to be an investor focused site? Pathetic!

  • Report this Comment On September 17, 2013, at 8:48 PM, marv08 wrote:

    You have always been a terrible writer, creating nothing else but FUD.

    This is a new low. Even for you.

    Do us all a big favour, and just drop dead.

    Silence is the only contribution we want from you.

    And, if you like, we can provide a list of names to take with you...

  • Report this Comment On September 17, 2013, at 8:54 PM, jda24601 wrote:

    Wow. Incredible and thoughtful analysis with lots of original thought. I assume MF doesn't pay you for your work. I feel foolish that I even clicked on your post.

  • Report this Comment On September 17, 2013, at 9:29 PM, larryw101 wrote:

    This monkey faced author, Rick Munarizz, is a relentless Apple basher. He has no credibility other than he writes for Motley Fool, which by the way, doesn't say much. He relies on his penny a post hit he gets each time someone clicks on his article.

    He pumps at least one negative article a week on Apple.

    But you know what, it's not this clowns fault, it's Motley's fault for publishing worthless and biased articles like this.

    Shame on Motley.............!

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