CELLPHONES: Apple On China Roll With Court Win, Sales Milestone

Bottom line: Apple’s new court victory in a China patent dispute shows its relations with Beijing are improving, positioning it well for growth in a country that is likely to pass the US as its largest global market in the next 1-2 years.

Apple wins China victory in patent dispute

A couple of new reports are showing that global gadget giant Apple (Nasdaq: AAPL) may have finally reversed its slumping fortunes in China, led by word that China probably overtook the US to become the world’s largest market for its iPhones in the first quarter of this year. The other report has Apple winning an important court victory against a Chinese company that accused it of illegally using its voice recognition technology.

This pair of upbeat stories come just a week after Apple scored another positive round of publicity in China, announcing it would make a relatively modest investment in 2 solar farms in southwest Sichuan province. (previous post) This sudden flurry of positive stories, and the fact that they’re being widely covered by China’s state-controlled media, shows Apple could finally be turning a corner in the country after a stormy relationship with Beijing over the last 2 years.

We’ll return shortly to broader implications of the latest news, but let’s start off our Apple round-up with reports of a likely first-quarter sales surge that may have officially propelled Chinese iPhone sales past the US for the first time ever. (English article) According to the reports, analysts believe that Apple is likely to show that its iPhone sales totaled 18-20 million when it reports its latest quarterly results this week. That would be well ahead of its US iPhone sales, which are expected to reach 14-15 million for the period.

Seasonal factors are at least partly behind the China surge, since the Chinese New Year falls during the calendar quarter from January to March, and is typically a strong time for gift buying and other big purchases. By comparison, the same quarter is usually a weak period for US sales, since it comes right after the consumer frenzy during the Christmas holiday season. Additionally, iPhones probably got a big boost in China from the recently signed supply deal between Apple and China Mobile (HKEx: 941; NSYE: CHL), the nation’s largest wireless carrier.

Next let’s look at the other major headline, which has an appeals court in Beijing siding with Apple in a patent dispute with a Shanghai company called Zhizhen Technology. (English article) That particular story dates back to a 2012, when Apple tried but failed to have a Zhizhen patent at the heart of the dispute declared ineffective. It took legal action to press its case but also lost. This new victory at a court in Beijing means Zhizhen’s patent claims won’t be valid, which should clear up the matter that could have affected Apple’s Siri voice functions.

The case contrasts sharply with another Chinese legal battle 3 years ago, which ultimately saw Apple pay $60 million to settle a trademark dispute over the China rights to the iPad name for its line of tablet PCs. Some saw that deal reflecting local Chinese government bias against Apple due to its late arrival to the country and relative lack of investment in the market. That image as a bad corporate citizen blew up in the headlines 2 years ago, when a small scandal involving Apple’s after-sales service snowballed into a major attack in state media that saw the company criticized for its huge arrogance. (previous post)

Apple ultimately made a rare apology in the matter, and CEO Tim Cook has made numerous trips to China since then to try and repair the company’s damaged image. Cook’s more active approach contrasts sharply with that of his predecessor Steve Jobs, who paid little attention to China and rarely, if ever, traveled to China during his time as CEO.

It’s still a bit too early to say if Cook’s efforts will change Apple’s image in China over the longer term, but the latest signals certainly look good. In fact, Apple never really suffered any major image problem among local gadget fanatics, who are quite loyal to its products. Instead, the big problem lay in the company’s poor relations with Beijing, which was a major problem in a highly bureaucratic market like China.

This new string of more upbeat announcements certainly seems to indicate a new era of friendly relations with Beijing may be on the horizon. That should help to smooth the way for Apple’s growth in a country that will almost inevitably pass the US in the next year or two to become the company’s largest global market over the longer term.

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