It shouldn't be that big of a surprise. Apple (NASDAQ:AAPL) has long needed a cheaper device in China to compete with local vendors selling inexpensive Android devices. The second quarter of this year put Apple at the No. 7 spot, with just 4.8% market share in the largest smartphone market in the world.
Low-cost market moving without Apple
Here are some second-quarter 2013 facts staring Apple in the face:
- Chinese vendor Xiaomi -- which launched two years after Apple in China -- shipped more phones than Apple.
- Despite Apple growing shipments by 20%, it still lost share to Chinese smartphone makers.
- Apple's market share in China is the lowest it's been since the first quarter of 2009.
- Sales of iPhones in China are down 14% year over year.
Apple defenders will say the company is on the eve of launching its lower-priced iPhone -- the supposed iPhone 5C -- and that this will turn the tide in the Chinese market. But I'm not so sure. As I've mentioned before, Apple's iPhone is likely to be a lower-cost device -- not a cheap iPhone. There's a big distinction between the two for consumers.
With Xiaomi selling Android phones for about $130, Apple's low-cost savior coming in around an estimated $350 to $400 unsubsidized may help it nab a little more market share, but won't unseat low-cost Androids that already dominate the market.
In the most recent quarterly earnings call, Apple CEO Tim Cook said, "I continue to believe in the arc of time that China is a huge opportunity for Apple. I don't get discouraged over a 90-day cycle that could have economic factors." While it's true that looking at three months doesn't provide a complete perspective on how Apple is doing, that statement seems a bit overconfident at the moment.
Canalys recently said in a report that sales of cheap smartphones in China were "exploding." Every month a cheaper iPhone isn't on the Chinese market is another opportunity for Chinese vendors -- and others like Samsung -- to outpace Apple and push the company further behind in the country.
Give 'em what they want
With Chinese consumers obviously in the market for cheap smartphones, it's a no-brainer that Apple would want to sell them a cheaper version of their phone. But I can't help but think that maybe by the time the device hits the Chinese market, some consumers will no longer be interested in one. Sure, iOS 7 will offer a refresh to the iPhone brand, and Chinese consumers have a knack for brand awareness. But with so many smartphone options on the market -- with comparable features -- it's hard to image a lower-cost iPhone completely sweeping the Chinese smartphone market and overturning Apple's market share woes in the country.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.