Here's One Reason Apple Needs a Cheap iPhone: China's Coolpad

New Apple Earnings Coming Later Today

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Apple is being outsold in China, the world's largest handset market, by a company less than 1% its size, highlighting how the lack of low-cost products limits the iPhone-maker in emerging nations.

China Wireless Technologies is one of four domestic suppliers outselling Apple in China with smartphones tailored to the budget of the nation's budding middle class. Its Coolpad 8060 retails for 619 yuan -- or just under $100 -- less than 20% the price of the cheapest iPhone.

Liu Ruju, a 27-year-old lawyer in Heilongjiang province, has been using a Coolpad Cheer for six months. He said the device doesn't browse the Web as fast as he'd like, though at 658 yuan it offers features Apple can't match, including the ability to use more than one SIM card.

"I have one line for work and one line for personal use," Mr. Liu said. "The special things about this phone are that it's cheap and dual SIM."

China Wireless expects sales to rise 40% this year to 28 million phones, helped by low prices and new products such as fourth-generation handsets. Apple, whose smartphone has made it the world's most-profitable company, slipped to sixth place in China from fourth as it struggled to lure consumers earning an average of $577 a month.

"Apple, with its current stable of products, is unlikely to rank high as long as the general level of affluence in China is low," said Magdalene Choong, a Phillip Securities analyst in Singapore who rates Apple's shares as neutral.

Apple, which reports earnings later today in the U.S., is trying to boost sales by opening more stores, adding an installment payment plan and seeking a handset deal with China Mobile, the world's largest phone company by subscribers.

The company is also planning a smaller, cheaper version of the iPhone aimed at developing markets. The handset, costing somewhere between $99 and $149, would be introduced late this year at the earliest, a person familiar with the matter told Bloomberg News this month.

IPhones made up about 15% of all smartphones sold in the third quarter of 2012, down from 23 percent in the first three months, according to data compiled by Bloomberg Industries, citing market researcher IDC. Smartphone shipments may grow 28 percent this year, led by emerging markets.

Apple "needs to adapt to where the growth is," former Chief Executive Officer John Sculley said in a Jan. 15 interview with Bloomberg TV. "It's got to learn how to sell products that are priced for the price point that the emerging middle class in Asia, for example, can afford."

China smartphone shipments will rise 44% to 300 million units this year, driven by handsets costing about 700 yuan, IDC forecast Dec. 17. The Coolpad runs on Google's Android operating system and has a 4-inch touchscreen display.

"The low end will get cheaper and better," said Sandy Shen, a Gartner Inc. analyst in Shanghai. "If you talk about market share, then the high end will get smaller and smaller as the market expands."

Apple CEO Tim Cook visited China for the second time in a year earlier this month, meeting officials including China Mobile Chairman Xi Guohua. The carrier has 710 million wireless subscribers, or about 64% of the market. IPhones are only sold by China's second- and third-biggest operators -- China Unicom and China Telecom -- because China Mobile's network doesn't support the Apple product.

China Mobile's unique, domestically developed third-generation network would require changes to the iPhone. Samsung, based in Suwon, South Korea, gained the edge over its U.S. rival by adapting its handsets for the carrier's system.

China Mobile is testing a fourth-generation network that may enter commercial service later this year. The company said in September 2011 that Apple would produce an iPhone for the new 4G network. The two also need to agree on issues such as benefit-sharing, Chief Executive Officer Li Yue said last month.

China Wireless, formed in 1993, has sold phones through China Mobile and the nation's two other carriers for at least a decade. Those ties and experience give the company an advantage over Apple, which entered the market in 2009.

Apple's earnings report may show that fiscal first-quarter net income slipped 2 percent to $12.8 billion, according to analysts' estimates compiled by Bloomberg. China Wireless, by comparison, is projected to report $39 million in net income for the full year 2012.

The introduction of a less-expensive iPhone would dent earnings for China Wireless and other low-cost device makers in China, said Leping Huang, an analyst at Nomura International Hong Kong Ltd.

"Apple's next action will affect the whole industry," Ms. Huang said. "If it comes out with a cheaper iPhone, it will change a lot of market dynamics."

~Bloomberg News~

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