Article / 03 October 2014 at 3:54 GMT

China's early iPhone release date a great call for Apple

China Watcher / Shanghai
China
  • Apple bringing forward sales date of new generation of iPhones in China to Oct 17
  • Available in time for China's biggest shopping day – Singles' Day
  • More competitors will make it difficult for Apple to justify its price premium

By Neil Flynn

After a regulatory delay because Ministry of Industry & Technology officials were concerned about potential data breaches related to the phone, Apple has announced it will sell the new generation of iPhones in China from October 17, with pre-orders beginning on October 10.

It was originally thought that Chinese users would have to wait until 2015 to see the new iPhones in stores, but the October release date is very significant. In China, November 11 is Singles' Day (11/11 looks like four single people), and people celebrate/console themselves by shopping. 

This is the biggest shopping day in China, equivalent to Black Friday in the US. Last year, Alibaba alone saw sales on Singles' Day reach RMB 35 billion ($5.75 billion), rising 83% from 2012, and Jack Ma’s target of RMB 100 billion is likely to be reached next year. 

This day is set to be huge for Apple, because last year on Alibaba’s platforms, Chinese smartphone manufacturer Xiaomi reached RMB 100 million in sales and sold all of their 220,000 smartphones within three minutes.

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Apple's new iPhones will be available in China in time for Singles' Day,
which will give sales a huge boost. Photo: Thinkstock

All online retailers and technology firms have discussed in recent conference calls that their core strategy is mobile, and as their services are geared towards on-the-go browsing and shopping, it will require users to have the latest and fastest smartphones in order to fully utilise these services. 

To give some examples, during the second quarter of 2014, online cosmetics retailer Jumei saw 53% of their sales come via mobile, and search engine giant Baidu saw some days where mobile search was actually higher than PC search, which is unprecedented. Baidu’s PC search figures are marginally higher than mobile, and this will likely be inversed within the coming quarters. Even firms like the search engine Qihoo are trading profit margins in order to invest more in mobile technology.

Another benefit that Apple will gain from this launch date is that as soon as the iPhone was launched in Hong Kong, mainlanders started going there to buy it. The same occurred in Japan, where it was reported that many Chinese customers were angry that they had travelled all that way and queued for hours outside the store, just to be told the iPhone had sold out. 

In fact, my Chinese social media accounts over the past few weeks have been flooded with friends saying that they are going to Hong Kong, and can buy a new iPhone for anybody that wants one. This illustrates an important point, because the people who can afford the new iPhone will get it as soon as they can through means such as this, and the longer the delay between Hong Kong’s release date and China’s release date, then the iPhone sales for the mainland won’t be as impressive as investors are hoping for. 

I am fully expecting investors to be focusing on Chinese sales figures for the iPhone, in the same way that the talk of Tesla’s second-quarter earnings was focused on orders from China.

Competition from the locals

While the iPhone is more a status symbol in China than in the west, it is very expensive, particularly when monthly salaries in the wealthiest cities such as Shanghai average about RMB 9000 ($1465), and fall significantly away from the tier one cities. 

However, China has always had a penchant for luxury goods, and it’s not uncommon to see workers earning $500 a month, and spending all their savings on the latest iPhone. But from a personal observation, this seems to have changed over the past few years, due to a combination of much cheaper alternatives that are equal to the iPhone, and perhaps due to the death of Steve Jobs, who was idolised in China. 

Local smartphone manufacturer Xiaomi is already being heralded as the "Chinese Apple" and I expect it to take a larger market share in the coming years.

Local Android competitors will provide fierce competition for Apple, such as Lenovo, Huawei, ZTE, Coolpad, Meizu and Xiaomi, all of whom provide smartphones that are more than capable of competing with the latest iPhone.

Apple's Local Rivals
Source: phone manufacturers

I expect Apple to see huge sales for the new iPhone in China, but I think that investors should be wary that competition in the market is very high, and it will become more and more difficult for Apple to justify the price premium when its Chinese rivals can offer identical models for much less. 

– Edited by Gayle Bryant

Neil Flynn is head equity analyst at Chinese Investors


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