Missing The Point Of Apple's China Mobile Deal

Posted: Dec 24 2013, 9:06am CST | by , in News


Certain people seem not to have quite grasped Apple’s basic business strategy. As a result they’re insisting that without a cheap iPhone then Apple won’t be able to make the most of its recent deal with China Mobile and the access that gives to their 760 million subscribers. What’s being missed is that Apple simply doesn’t care about market share. As a properly capitalist company it cares about the profits it can make for its shareholders only.

An example of this is here:

Apple CEO Tim Cook has discussed gaining a stronger foothold in China as a major priority for the company. The China Mobile deal will help Apple accomplish that.

But unless Apple changes its strategy and offers a low-cost iPhone for the Chinese market — something the company has proven unwilling to do — it’s unlikely that Apple would become a top Chinese smartphone player.

But the thing is that Apple has repeatedly said that it’s not interested in being a top Chinese or anywhere else smartphone player. It’s interested in being a top player at the top end of the smartphone market which is an entirely different thing.

One of the things that I think is interesting about Apple is that despite its very cool and hip/with it reputation, despite the manner in which it’s seen as somehow on the liberal end of the fashion spectrum (yes, I know, who ever thought that fashion has a political spectrum but you know what I mean, we certainly don’t expect Apple to come out against gay rights, or in favour of creationism), is how amazingly and strictly capitalist it is.

It’s quite clear that the ethos of the company is to make money for its shareholders. They don’t go into low margin products in the chase for market share, they’re quite happy staying where they can make 35 and 40% net margins on sales. They don’t abuse tax laws but they quite happily play them to bring the foreign tax rate down to 2% or so. The conditions in Apple’s assembly plants (actually owned by Foxconn, Pegatron and Jabril etc) are better than those in comparable purely domestic Chinese plants but they only pay what they need to in wages, not what some campaigners would insist are “fair” wages.

Yes, Apple does now have access to hundreds upon hundreds of millions of China Mobile customers now. We might well expect those 30 to 40 million extant iPhone users on China Mobile to upgrade now so that they can move from 2G/EDGE speeds to 3G/4G. There will be some other amount of those 760 million who can afford an iPhone and some of them will shift. But Apple doesn’t aim for the mid-market in the US or in Europe so it’s exceedingly unlikely that they will in China.

And it’s worth noting one important point about China itself. With a 10% growth rate (a little higher than what they’ve got now but not much) the economy doubles in size every 7 years. And with a static population (roughly China’s situation) incomes will double every 7 years too. So the number of China’s 1.3 billion people whose income grows each year to the point where they can afford an aspirational product like an iPhone is huge. When incomes double every 7 to 10 years among 1.3 billion people then we’ve actually got the equivalent of the entire population of a middling European country moving across that line where an iPhone (or similar) moves from being an unaffordable luxury to an affordable aspirational choice.

Another way of putting this is that Apple doesn’t need to go down market as China is moving upmarket so darn quickly.

Source: Forbes

This story may contain affiliate links.


Find rare products online! Get the free Tracker App now.

Download the free Tracker app now to get in-stock alerts on Pomsies, Oculus Go, SNES Classic and more.

Latest News


The Author

Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.




comments powered by Disqus