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Why is China the cure-all? Seriously, I'm asking. The way we talk about it, you'd think it was a magical fairyland where American companies go to seek enlightenment and profits. But this is largely a myth -- one that Apple (Nasdaq: AAPL ) investors are buying hook, line, and sinker.
This week, the Mac maker will begin selling the iPhone to Chinese nationals through a non-exclusive deal with China Unicom (NYSE: CHU ) . Negotiations with China Mobile (NYSE: CHL ) are apparently still under way. Investors tremble at the possibilities, as if China Unicom customers will line up for hours before dawn to get a new and government-approved iPhone.
"With the iPhone dominating here, soon to be in China, the iPod, [Touch], new Macs, and [iTunes] this company looks to be on the verge of having a [Microsoft (Nasdaq: MSFT ) ] type of stock splits every 6 months," DarthMaul09, an All-Star investor in our Motley Fool CAPS database, wrote earlier this month.
Color me skeptical. I own Apple shares, but not because of the China connection. I own shares of Apple because software developers are the new power brokers in telecom, and they're developing for the iPhone more than any other smartphone platform. Software, volume pricing, and global broadband adoption are more likely to drive growth than untapped territories.
They'll certainly drive more growth than China will; its 3G network is new and comparatively slow when compared with what we U.S. iPhone users are used to. Worse, China Unicom's version of the iPhone is a lightweight that lacks Wi-Fi support.
This is a serious issue, but it isn't surprising. China has a history of protecting its own -- (cough) Baidu (Nasdaq: BIDU ) (cough) -- leaving foreigners to pick up scraps where they may. In this case, officials are ensuring that Wi-Fi hot spots don't substitute for its domestic carrier networks in delivering applications data.
Thus, China Unicom's strategy to win customers isn't to offer more features, or even better pricing, but to offer the 1 million or so who have unlocked iPhones operating on China Mobile's GM network "amnesty" via a contract for its own network, IDG News Service reports.
I doubt this approach will work. What is clear to me -- and to my Foolish colleague, Motley Fool Global Gains co-advisor Tim Hanson -- is that you don't get massive growth by offering locals Diet Coke when they already love Mountain Dew.
"The iPhone isn't coming to China; it's already there. When we visited in July, even our taxicab drivers in Shanghai already had iPhones. So if you're looking for dramatic growth, you're probably not going to get it," Tim said when I spoke with him Monday night.
He's right. The Chinese consumers who can afford an iPhone already love the caffeinated, high-octane version. Why would they switch to the diet version, and why now? The answer, of course, is that they probably won't.
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