The Wall Street Journal has published a rumor that China Mobile Ltd. (CHL), by far the largest wireless carrier in the People's Republic, will begin to sell the Apple Inc. (AAPL) iPhone. The deal should help Apple's faltering sales substantially. China Mobile has 700 million subscribers. But how may can afford a relatively expensive smartphone?
China's purchasing power parity per capita is just over $9,000 per year, based on its population and gross domestic product (GDP), according to World Bank Data. In the United States that figure is $50,000. A new iPhone 5S sold in the U.S. by AT&T Inc. (NYSE: T) sells for between $199 and $399. That assumes a customer takes a two-year subscription. The price set by China Mobile may be less than that. Apple may not take a portion of the subscription fees, which are paid over two years. China Mobile may be unwilling to lose the money that comes with paying $500 per unit to Apple and then deeply discount the new phones to get new subscribers.
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Nevertheless, $9,000 is a very low base income to afford what could be a $200 smartphone and the fees that go with a subscription. The counter argument is that the top 10% of China's population in terms of income make much more than $9,000 a year. And that top 10% totals about 130 million people. Those 130 million people are more than enough of a base for Apple to sell tens of millions of iPhones.
Apple has another challenge in China. Several pieces of research show that Apple ranks fourth, or perhaps fifth, in terms of smartphone sales. Even if people can afford an iPhone, will they choose it over products made by market leader Samsung, which research firm Canalys claims has 21% of the market to Apple's 6%? China-based Lenovo also has a much larger market share than Apple, and presumably an advantage in its home market.
Apple's success in China, or lack thereof, may not mirror the history of the iPhone in the United States. Although Samsung has taken a great deal of Apple's market share in America, Apple remains in second place. For the time being, it has that position cemented.
In China, Apple is up against a population that is much poorer than in the United States, as well as entrenched competition that has built sales over several years before the new alliance between Apple and China Mobile. And what if the iPhone 5S is just too expensive to make Apple a raging success in the People's Republic?