Bloomberg News

IPhone Scarcity During Chinese New Year May Benefit Samsung

January 20, 2012

Jan. 20 (Bloomberg) -- Apple Inc. is missing out on Chinese New Year sales and giving competitors a potential boost after pulling all iPhones from company stores during the nation’s most important gift-giving season.

Apple stopped selling all handsets at its five China outlets on Jan. 13 after customers pelted the flagship store in Beijing with eggs because it wouldn’t open on the first day of sales for the iPhone 4S. The online store in China also sold out of the device.

The one-week holiday, which begins Jan. 23, generated $64 billion in retail sales last year, according to government statistics. Clearing iPhones from shelves in the 10 days leading into the Year of the Dragon may help Samsung Electronics Co. and other competitors using Google Inc.’s Android software increase their footholds in the world’s largest mobile-phone market.

“A large portion of Chinese New Year sales are about having the gifts in hand right now,” said David Wolf, chief executive officer of Wolf Group Asia, a Beijing-based consulting firm. “Android devices competitive with the iPhone will benefit.”

HTC Corp. and Motorola Mobility Holdings Inc. also make iPhone-class devices that could win over buyers frustrated by Apple’s sales halt, Wolf said.

Scalper Markup

Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment on the sales impact of removing iPhones from company stores or say when the devices would return. The new model remains available through carrier China Unicom (Hong Kong) Ltd. and authorized resellers.

Wang Yun and her husband drove more than an hour to the Apple store in Beijing’s Xidan neighborhood, intending to buy an iPhone 4 as a holiday present for themselves. Wang wanted to use the FaceTime video-call feature to chat with friends in the U.S.

“No one told us Apple isn’t selling iPhones anymore, and we drove all the way here,” said Wang, a 34-year-old entrepreneur. “Now what are we supposed to do? It’s a long way to come for nothing.”

Other sources are the dozen hawkers milling around outside, haranguing shoppers with cries of “4S here!” and “Brother, come on, buy one!” Negotiations start at 5,700 yuan ($902) for a 4S handset they say is authentic.

Losing Share

That’s about 14 percent higher than the 4,988-yuan price listed on Apple’s website for the sold-out handset.

The 4S debuted Jan. 13 at four of the five Apple stores in China. Hundreds of people waited outside the Sanlitun district outlet in freezing temperatures, and some started throwing eggs when it was announced that the store wouldn’t open. Police had to restore order.

Apple later announced it was halting phone sales at all stores, saying the move was “for the time being” and intended to “ensure the safety of our customers and employees.”

“Chinese New Year is the most important period for sales promotions,” said Wang Ying, a Beijing-based researcher at Analysys International. “The lack of supply will give competitors an opportunity for sales.”

Cupertino, California-based Apple’s share of China’s smartphone market dropped to 10.4 percent in the third quarter from 13.3 percent the quarter before, while Samsung’s jumped to 19 percent from 15 percent in the same period, according to Stamford, Connecticut-based research company Gartner Inc.

Permanent Loss

Apple sold 5.6 million iPhones in China during the first nine months of last year, making it the No. 4 smartphone vendor in China in the third quarter, according to Gartner. It trails Nokia Oyj, Samsung, and Huawei Technologies Co., Gartner said.

Jason Kim, a Seoul-based spokesman for Samsung, declined to comment.

“Most worrying is the potential loss of good will,” said Teck Zhung Wong, a Beijing-based analyst with IDC China. “There might be real demand permanently lost.”

Apple’s stores in China generate the highest traffic and highest revenue of any of the company’s stores, on average, Chief Financial Officer Peter Oppenheimer said in January 2011.

The maker of iMac computers and the iPad tablet increased its revenue in China to $13 billion in the year ended Sept. 24, from $3 billion a year earlier, Chief Executive Officer Tim Cook said in October. China accounted for 16 percent of Apple’s revenue in the fiscal fourth quarter, making it the company’s biggest national market after the U.S.

‘Scary’ Events

The Sanlitun incident shows the need for Apple to rethink its approach in the China market, said Duncan Clark, Beijing- based chairman of BDA China, which advises technology companies.

“Headlines about scarcity of iPhones and customers camping out, etc., have proven a highly effective marketing approach,” Clark said. “Now events in China have crossed the line from scarcity to just downright scary, both for Apple and the government.”

Sherry Wu, a 19-year-old college student, went to the Xidan neighborhood store with classmate Ada Li to buy the iPhone 4S. After finding the shelves empty, they stood outside and debated what to do.

Wu said she didn’t want to buy from a scalper for fear of getting a fake, so she may ask a friend to bring her a device from Apple’s Hong Kong store. Li then pulled out a Samsung Galaxy handset she’s had for three months and suggested that as an alternative.

“I like the Galaxy,” Li said. “It looks like an Apple but it’s cheaper than the iPhone.”

--Edmond Lococo, with assistance from Penny Peng in Beijing and Jun Yang in Seoul. Editors: Michael Tighe, Bret Okeson.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

-0- Jan/20/2012 17:53 GMT

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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