Smartphone powerhouse Apple (Nasdaq: AAPL) is finally waking up to the importance of the China market, forging a new tie-up with leading online video site Youku (NYSE: YOUK) in bid to incorporate more China-friendly features into its wildly popular iPhones. This latest deal follows the even bigger unconfirmed news last week that Apple was in talks to integrate software from leading Chinese search engine Baidu (Nasdaq: BIDU) into its next generation iPhone, in another major nod to the importance of a market that now accounts for a fifth of Apple’s global sales, second behind only the US. (previous post) What we see here is a growing trend for Apple to integrate leading Chinese Internet software into its next-generation iPhones, which should result in some smart new models when Apple rolls out its latest smartphone later this year. Executives speaking at a developer conference in the US have already touted the fact that the next generation iPhone will have better Chinese input and Mandarin voice recognition capabilities, and I wouldn’t be surprised if we see some more news leaks and announcements in the days ahead for tie-ups with other Chinese Internet leaders like e-commerce giants Alibaba or Jingdong Mall, and microblogging sensation Sina (Nasdaq: SINA) Weibo. Let’s look at this latest announcement, which has Youku saying its video site software will be integrated into the newest versions of Apple’s desktop and mobile operating systems, set for release later this year. (company announcement) The integration should provide a nice boost for Youku, which will solidify its place as the country’s leading online video site with its pending merger with the second largest player, Tudou (Nasdaq: TUDO). Youku-Tudou will control a combined 40 percent of China’s online video market, and the addition of their platforms on the next-generation iPhones and Apple notebook computers could help them to further consolidate their dominance and perhaps even push them to their elusive goal of sustained profitability by year end. iPhones have become a must-have product for gadget lovers in big Chinese cities, with the smartphones now offered in plans by 2 of China’s top telcos, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU). This new drive to create a China-friendly iPhone also hints that Apple could be near one of its biggest objectives for the market, namely the signing of an iPhone deal with China Mobile (HKEx: 941; NYSE: CHL), China’s biggest wireless carrier with two-thirds of the market. Such a deal has been repeatedly delayed due to technological reasons, but this rapid and sudden push to develop a China-friendly iPhone leads me to believe we could also see a China Mobile iPhone deal by the time the newest China iPhone comes out later this year.
Bottom line: Apple’s new tie-up with top online video site Youku is the latest step in its plans to make a China friendly iPhone, which could soon also include a long-awaited deal with China Mobile.
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