Who Stole Apple's Great Chinese Dream?

Umang is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

China, with its huge population, is one of the most lucrative markets for all industries. Thus all the smartphone and tablet market players would like to expand their horizons by entering into the Chinese market. But the journey isn’t smooth, especially for Apple’s (NASDAQ: AAPL) iPhone 5.

Apple got an early success with iPhone 5 as they managed to take a booking of 2 million iPhone 5's in the 24 hours within the start of pre-booking on Sept. 14, 2012.  They have finally been able to meet the supply and demand curve, and they describe the pre-booking of iPhone 5 as “extraordinary” compared to its predecessors. The share price zoomed to its all time high of $700 during the launch of the iPhone 5.

But the biggest problem for the iPhone 5 is the entrance into the Chinese market. This, coupled with some Maps issue in its latest OS, has led to a dramatic fall in the Apple's share prices. The share price of Apple plunged about 20% to $545 within a couple of months, which is indeed a very short span of time. This downfall is described by many analysts as a “classical break down.” 

A classical break down means the inability of the share to handle its consistent upward movement, which leads to a sudden dip.  This is visible from the share price movement of Apple in the last 6 months. 

<img src="/media/images/user_13211/apple-chart_large.JPG" />

Source : http://money.cnn.com

In early December Apple finally received a green light from China when they gave the company permission to launch iPhone 5. Before they could start celebrating the success they received a shock when the world’s largest wireless network, China Mobile ltd., declined the addition of the iPhone 5 in their portfolio. As per the CEO of China Mobile ltd., Li Yue, they would not add iPhone 5 until they struck a profitable deal with Apple.

Who gets the head-on then?

To the surprise of many, Nokia (NYSE: NOK) takes a lead on Apple in this deal. Nokia signed its own deal with the Chinese mobile provider. The deal saw the operator agreeing to carry a version of Nokia's flagship Windows Phone 8 handset, the Lumia 920T, that has been tailored to meet the need of the Chinese market. This is the biggest hope for the sinking ship of the Finnish company.

China Mobile had 703 million subscribers at the end of October, including 79.3 million high- speed internet users for smartphones. This will help Nokia give Apple’s iPhone 5 a tougher fight in the Chinese market. Apple did sign a few deeds with the small carriers like China Unicom Ltd. and China Telecom Corp., both of which sell iPhone 5 with a subsidy. But still. Nokia will hold an upper hand in terms of reach as far as the Chinese market is concerned.

Nokia’s Lumia 920 also beats the iPhone 5 in terms of features. They have a higher CPU clock speed, a higher density pixel, a bigger screen size, along with a higher screen resolution. They also provide 42% more battery power, along with a distinctive wireless charging option. Nokia’s Lumia 920 is clearly the smartest of all the Smartphones in the market to date, and is the only ray of hope for the survival of Nokia, which has seen a huge dip in its market share over the last couple of years.

The biggest threat

The biggest threat, though, for both Apple and Nokia is the Korea-based tech giant Samsung. Their Galaxy handset that runs the Google (NASDAQ: GOOG) Android operating system holds almost 17% of the market share of Chinese market. A survey by comScore showed that in the three-month period ending in October, South Korea's Samsung was the top Smartphone manufacturer with 26.3% market share, up from 25.6% in the prior period. Meanwhile, Apple stands in second place with 17.8% market share.

Google's Android is the biggest platform for the smartphone market, with a market share well over 50%. The biggest attraction for the hardware manufacturers towards Google is their open source structure. This allow investors to get a grip in the Smartphone market by just applying their hardware and relying on a trusted operating system, the Android.

What’s the Journey Ahead?

China is clearly one of the biggest battlegrounds for all the Smartphone players. The growth in the western market is due for a stagnant phase in the coming few years, which is quite known to all the giants. Thus, in order to continue profitable growth in the coming few years companies are trying their best to create a stronger foothold in the Chinese market. The the early success of Nokia in this market will surely be a confidence booster. But this should not lead to a laid back attitude, especially because of the continuous fight from Apple and the growing tech-giant Samsung. Can this ray of hope help Nokia turn things around? Or will Apple’s iPhone 5 succeed with or without China Mobile ltd. in the Chinese market? Only time will tell.

Umang27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus