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Apple’s Russia Push May Fizzle on Price as IPhones Go Global (2)

October 25, 2013

Apple’s Russia Push May Fizzle on Price as New IPhones Go Global

Pedestrians pass an Apple Inc. logo outside a re:Store premium Apple reseller in Moscow, Russia. Photographer: Andrey Rudakov/Bloomberg

Apple Inc. (AAPL:US)’s push to win users in Russia, one of the countries where the latest iPhones went on sale today, may fall short as the new model has a major drawback: it’s still too expensive.

Six years after the iPhone’s introduction, Apple’s share of Russia’s smartphone market is hovering at about 8 percent as the device is too pricey for all but the wealthiest of the country’s 143 million people. Samsung Electronics Co. (005930) has grabbed more than 50 percent of Russian sales with its cheaper devices running Google Inc. (GOOG:US)’s Android software.

For the first time, Apple is bringing out a cheaper iPhone along with a higher-end model to “serve even more customers” around the world. With the retail price in Russia about $160 less than the top version, the 5c is still set to cost almost $800 -- about the country’s average monthly income.

“If Apple really wants to compete with Samsung, it should’ve come up with a much lower price for the 5c,” said Simon Baker, an analyst at IDC in Moscow. “It’s really a matter of what Apple wants: to have a really global product and retain market share as the smartphone market moves toward cheaper price brackets, or to focus on making the maximum profit.”

The Russian market highlights Cupertino, California-based Apple’s dilemma as it balances between keeping its industry-topping profit margins (AAPL:US) and challenging Samsung’s dominance in high-growth markets. Apple’s sales growth slowed to less than 1 percent last quarter, placing more pressure on Chief Executive Officer Tim Cook to go after new customer groups.

Subsidies Banned

Apple’s difficulties in many emerging markets, including Russia, stem from the way handsets are priced and purchased. Whereas in the U.S. wireless carriers subsidize devices in exchange for longer contracts and larger monthly bills, in Russia that isn’t allowed.

That means consumers have to pay the full price, leaving high-end models out of reach for many. In the U.S., a consumer can buy the iPhone 5c for $99.99 with a two-year contract.

The price reduction does signal that Apple is gradually taking markets such as Russia more seriously -- though it needs to be even more aggressive to tap growth in such countries, said Baker. Too high prices also threaten to curb the new iPhone’s sales in markets including India and China. “Half of the globe is non-operator markets,” he said.

Surging Market

This year, Apple’s sales in Russia have been driven by older versions, which include the 4s that costs about $500, Baker said. And those wealthy enough to afford the latest version are likely to opt for the high-end 5s model, Baker said.

At Re:Store, a Russian store chain focusing on Apple products, the 5s has been outselling the 5c by about 10 to 1 today, said Lyudmila Semushina, a spokeswoman for the retailer. Demand has been higher than during last year’s debut of the iPhone 5, she said. She declined to give sales numbers.

The 5c’s price didn’t prevent Oleg Barmin, 33, from snapping up a yellow version in Kaliningrad, Russia.

“I wish the 5c was cheaper,” said Barmin, who works as a marketing director for a blog service. “Still, the price in Russia is the same as in Europe. I am thinking about buying the 5s also as I need several phones for my work.”

Russian shoppers can also buy the new iPhones at retailers such as Svyaznoy and Euroset. Wireless carriers OAO Mobile Telesystems and VimpelCom Ltd. (VIP:US) will also resume carrying the new iPhones through agreements with other distributors.

Larger Screens

Russia is among about 30 countries where the new iPhones go on sale today. Next week, sales expand further to more than a dozen nations including India, another fast-growing market where Apple commands less than 10 percent of sales. The debut in the U.S., China, and other markets, was Sept. 20.

In Russia, at stake is a share of a smartphone market that soared 65 percent in the first half to 7.6 million units, according to IDC. Samsung, based in Suwon, South Korea, boosted its share to 54 percent from 40 percent. Apple, whose market share budged to 8.3 percent from 7.9 percent, competed for the second spot with Nokia Oyj (NOK1V) and Sony Corp. (6758)

Samsung reported record third-quarter earnings today, helped by sales of cheaper smartphones in emerging markets such as eastern Europe. In Russia, Samsung has also benefited from demand for large-screen handsets, often dubbed phablets, Alexey Dorofeev, head of Samsung Mobile in the country, said in an interview in July. That’s a category Apple doesn’t have a product for.

Cook said in July Apple is “really happy” with its performance in Russia. Bethan Lloyd, an Apple spokeswoman in London, declined to comment.

Worldwide, the iPhone’s market share fell to 13 percent in the second quarter from about 17 percent a year earlier, while Samsung kept its share at above 30 percent, according to IDC.

“IPhone sales aren’t doing great globally,” Eldar Murtazin, an independent analyst in Moscow, said by phone. “Such a large market as Russia may help.”

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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