SMARTPHONES: New iPhone on Express Train to China

Bottom line: Apple is likely to log strong orders for its new iPhone 6S models, aided by its own strong reputation and aggressive promotions by China’s telcos for their new 4G service.

New iPhones on order in China

What a different 3 years makes. In that brief period China has transformed from ugly stepchild to a new Cinderella for gadget giant Apple (Nasdaq: AAPL), whose newly announced iPhone 6S models will make one of their first global stops in the world’s largest smartphone market. That’s the word trickling out from China-based sources, which were leaking the information as Apple unveiled its latest iPhone models at a globally-watched event in California.

While most eyes were fixated on that launch for the new series of iPhones, China watchers were more focused on when the models will come to a market that is now Apple’s largest outside the US, and even briefly passed the US early this year. Apple’s China fans weren’t disappointed, with reports that the nation’s big 3 telcos would begin taking orders for the new iPhones just a day after the US launch event.

News of the immediate order-taking for new iPhones was almost certainly leaked by the 3 telcos themselves, as they engage in a fierce battle for market share for their newly launched 4G networks. Among the many smartphone brands battling for share in China, Apple is one of the few with major customer loyalty and the ability to stay near the top of the list of best-selling brands in the fiercely competitive market.

The latest headlines don’t have much detail, but are citing company sources saying China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 763; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) all began taking orders for the new iPhone 6S series of smartphones September 10, the day after the product’s formal unveiling at the California event. (Chinese article)

There’s no word on pricing for the China phones, though I expect that all 3 telcos will provide highly subsidized packages in a bid to win subscribers for their new 4G networks. The reports add that China will be among the first group of countries where the iPhone is available, consistent with the other recent launches.

Growing Clout

China was still mostly an afterthought for Apple as little as 3 years ago, the result of a number of factors. The country’s 3 big telcos all took their time signing agreements with Apple, which slowed down introduction of iPhones to the market. The largest carrier, China Mobile, with two-thirds of the market, only signed its first agreement with Apple in late 2013, though it has been quite aggressive with iPhone promotions since then.

Apple has also suffered from image problems in China, and came under attack a couple of years ago by state media for its perceived arrogance after being criticized for deficiencies in its after-sales policy. Lastly, Apple was also hampered by a bureaucratic Chinese system that requires extensive testing and certification for all cellphones before their launch on any of the nation’s major wireless networks.

The company has worked hard to address all those issues under the leadership of current CEO Tim Cook, who has become a frequent visitor to China, unlike his predecessor Steve Jobs. Cook’s efforts appear to be bearing fruit, allowing Apple to post 68 percent iPhone growth in China in this year’s second quarter. It also won the crown as China’s best-selling smartphone brand earlier this year, though it lost the title in the second quarter.

With the new products now formally unveiled, all eyes will now be watching to see how the new iPhones actually sell once they become available. I expect the orders and sales will be quite strong, partly due to Apple’s own strong reputation and also do to aggressive promotions by all 3 of the carriers. Accordingly, we can probably expect to see Apple post more strong iPhone growth in China, probably in the 50-80 percent range, in the final quarter of 2015.

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