Apple Will Need To Make A Low End iPhone If They Want To Win China

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While Tim Cook has been CEO, Apple’s stock price has been soared into the stratosphere. Some believe Apple’s incredible growth is bound to plummet in the near future because, come on, how many more iPhones and iPads can they really sell to their U.S. and European customers?

In a new story for Fortune, Bill Powell argues that the sky’s still the limit for Apple, they just have to win in China. But Apple – with all its power and iconic devices that consumers lust for – is actually an underdog in the battle to win the Chinese handset market, and they’re going have to learn some new tricks if they hope to beat Samsung and others.

For the most part, Apple really hasn’t started putting a full-court press on China. They launched the first Apple retail store in Beijing in 2008, a full seven years after they started their retail strategy in the U.S. During that time, China only accounted for a few hundred million dollars of Apple’s sales, but in the first half of 2012 Apple is now reporting $12.4 billion in sales from China, and many analysts think Apple will pull in over $25 billion by the end of the year, making it fairly obvious that Apple’s future growth and success will depend on China in a big way.

Things seem to be looking up for Apple in China now that money is pouring in, but the truth is that Apple is still an underdog to the likes of Samsung, Lenovo, ZTE, and Huawei. The biggest problem for Apple in China right now is a) they haven’t signed a deal with China Mobile and their 655 million users, and b) most Chinese citizens can’t afford an iPhone, even when they’re in the middle class.

Handset manufacturers like Samsung and Lenovo make high-end products that compete with the iPhone 5 in the U.S., but they also make a range of mid and lower-end smartphones for people in developing markets like China. Apple only competes in the higher-end market which gives other companies an opportunity to gain Chinese consumers’ loyalty for a few years before they’re able to afford an iPhone.

Fortune interviewed more than 150 young Chinese consumers in three different cities while they were shopping for smartphones. More than half claimed they’d love to buy the iPhone, but it’s out of their price range. By the time they’ll be able to afford the iPhone in a few years, their loyalties may have shifted to Samsung or Lenovo after using their handsets for a number of years, which opens the door for competitors, and means Apple will face an uphill battle for the next several years in China.

But even though Apple only sells premium products, they’ve still managed to capture 12% of the smartphone market, while Samsung leads with 18%. Just as they do in the U.S., customers line up en masse on iPhone launch days in China, while no one bothers to celebrate the launch of a new Samsung smartphone.

Who knows how big Apple’s marketshare would be if they decided to compete on the lower-end as well as the higher-end, but as Apple is always focused on making the absolute best products on the market, it’s doubtful whether they would make a cheap iPhone just for China, and in the end, that may mean that they won’t be able to win China.

To learn more about Apple’s battle in China, check out Bill Powell’s Fortune  article that will hit newsstands will hit newsstands on Monday, October 15th.

Source: Fortune