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The iPhone's China Syndrome

By Richard Adhikari MacNewsWorld ECT News Network
Nov 4, 2009 4:00 AM PT

The iPhone went on sale last week in China, and it landed more or less with a thud. Cupertino's carrier partner in that country, China Unicom, announced on Tuesday that only 5,000 customers had purchased the phone thus far. At this rate, the handset may have trouble meeting sales expectations. China Unicom had pledged to sell 1 million iPhones per year.

The iPhone's China Syndrome

Price could be one deterrent -- the iPhone starts at around the equivalent of US$730. Add in monthly subscriber fees, and you're soon looking at a rather pricey phone in a country where the average income of urban workers in 2008 was less than $4,300.

Another problem could be the wide choice of devices available to the Chinese consumer. In addition to cheaper gray-market iPhone sales -- which Kevin Wang, director of China research at iSuppli, had pegged at about 1 million units per year -- the iPhone has to contend with a number of competitors. These range from Nokia phones, which dominate the market, to iPhone knockoffs to Android phones.

"It's most likely a combination of all these factors," Brian Marshall, an analyst at Broadpoint AmTech, told MacNewsWorld. However, he's optimistic that things will pick up for the iPhone. "Over time, I think the iPhone scales nicely in China," Marshall said. "I think China Unicom's figure of 1 million iPhone sales a year is conservative."

Still, Apple may need to do something about price. It had a similar experience with the iPhone in India, according to BusinessWeek. The iPhone was launched in India in August of 2008, and by April 2009, total sales were reportedly less than 20,000. As is possibly the case in China, price and competition from an entrenched market leader -- Nokia again -- are making things difficult for the iPhone in India.

Taking Care of Business

On the enterprise front, the iPhone seems to be making some headway.

For one thing, Medallia, which helps companies track interactions with customers in near real-time, has announced an iPhone app for what it calls "enterprise feedback management". This lets users access, monitor and respond in real-time to customer feedback across all channels, including social media.

"More and more of our customers' employees are using the iPhone at work," Amy Pressman, Medallia's president and chief financial officer, told MacNewsWorld . These users range from vice presidents to managers of individual hotels and retail stores to front line staff.

Medallia's announcement follows in the footsteps of IBM. In October, Big Blue announced that Lotus Domino 8.5.1 would natively support the iPhone.

With more than 100,000 apps now in the app store, why are these apps important to investors? Because these are meat-and-potatoes apps that will be heavily used for business-critical purposes, and their use may spur more iPhone sales.

Also, the iTunes App Store and the iPhone will gain credibility as more enterprises pick up iPhone apps, opening up another new market for Apple. "We have found that our iPhone-using enterprise customers are more interested in applications beyond email than our customers who use other smartphones," Pressman said.

Killing Off Kindle?

Meanwhile, as has been widely expected, more and more iPhone owners are using the devices as e-readers, according to research by Flurry. Flurry offers analytics, deployment and monetization tools for mobile app developers.

In September, apps categorized as "books" on the App Store outnumbered those designated as "games" for the first time, Flurry found. In October, one out of every five new iPhone apps launched was a book. Flurry's survey sampled more than 2,500 apps, 40 million consumers and four platforms -- the iPhone and the iPod touch, the BlackBerry platform, JavaME, and Android.

Whether or not sales of Amazon's Kindle e-reader will be affected by people using the iPhone as an e-reader has yet to be seen. However, with Amazon stating that holiday sales of the Kindle might set new records, it could be that the iPhone might ride another new wave of demand and see a further boost in sales.

Apple will remain strong, said Broadpoint AmTech's Marshall. He's sticking with his price target of $235 a share.

On Tuesday, Apple shares closed at $188.75, down 56 cents from the previous day's close of $189.31.

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