Huh? Say again?! In a post today on Barrons’ Tech Trader Daily, reporter Eric Savitz asked the question “Is Apple (AAPL) running into trouble in China?” Savitz then reposted an excerpt from a Northeast Securities research piece authored by tech analyst Ashok Kumar.
Ashok Kumar, an analyst with Northeast Securities, asserted in a brief research note this morning that the much-ballyhooed deal for sale of iPhones through China Unicom (CHU) so far has been something of a dud. “Sales of iPhone through China Unicom, to state it mildly, have been disappointing,” he writes. “Volumes since launch have run at a fraction of stated goals.” Kumar isn’t offering any hard numbers, and Apple hasn’t yet, either. Meanwhile, Kumar remains positive on Apple’s shares. Apple will report earnings a week from today.
To his credit, Savitz promptly corrected the record:
Update: Hmmm. So, earlier today I posted an item from Northeast Securities analyst Ashok Kumar asserting that sales of the Apple iPhone in China have have been disappointing. But here’s the thing. An Apple spokeswoman notes that sales at China Unicom haven’t actually started yet. Which would make it hard for them to be disappointing.
Using his best Ricky Ricardo voice, Savitz adds: “Ashok Kumar, you have some explaining (splainin’) to do.” Savitz then sent an email to the Northeast Securities analyst requesting clarification.
Soon thereafter, Kumar called Eric Savitz to offer “more detail” (*cough* obfuscation and backtracking). And once more the Barrons’ post was updated:
Update: Kumar Explains Himself. OK, I talked to Kumar. He agrees that the China Unicom will not make the iPhone physically available to customers until October 15, but he notes that the phone had been available for pre-sale since the beginning of the month, and that is where he concludes the phone is so far disappointing. He says that Unicom has set a goal of selling 300,000 phones a month, which would be a little under 75,000 units a week; and he says that pre-sales in the first few days of availability were extremely low, at around 1,000 units. Now, I would note that there are a host of potential reasons for this – I have no idea whether availability of pre-sales was widely publicized in China, for instance. (Although it is true that the information has been available for a while on the Web.) Kumar thinks pricing is key issue – he says the phone is selling for 5,999 RMB for the 8 GB model, 6,999 RMB for the 16 GB version and 7,000 for the 32 GB version. Translated to dollars, that would be $879, $1026 and $1172.
Okay, let’s dissect Kumar’s miss-analysis …
1) The iPhone has been available for pre-sale since October 1 but won’t be physically available to customers until October 15
China Unicom made it clear that the official iPhone launch would not begin until the end of the month (end of October). This was covered exhaustively in China’s tech press, yet a few western journalists (and apparently at least one analyst) mistook the Oct 1st “reserve your iPhone” campaign as a launch or pre-sale (i.e. buyer commitment) … it was not!
2) He says that Unicom has set a goal of selling 300,000 phones a month, which would be a little under 75,000 units a week;
I would be very interested to learn where Kumar came up with these specific iPhone sales goals? There have been plenty of China Unicom “insider “ leaks to China’s tech press, but those numbers have never come out in any press reports. At least none that I’ve read and I check all major sites on a daily basis. Perhaps Kumar would be good enough to share his source? Was it a China Unicom source? I don’t mean to quibble too much over this number. If Kumar is right, then China Unicom planned to sell 3.6 million iPhones within the first year, 7.2 million by year two, and 10.8 million over a three year timeframe. Not an unreasonable goal in my humble opinion. But “source please!”
3) … and he says that pre-sales in the first few days of availability were extremely low, at around 1,000 units
Not true! There have been a few anecdotal leaks of the volume of “reserved” China Unicom iPhones. These anonymous and unverified leaks have come from two China Unicom subsidiaries – Chongqing Uincom reported that 1,000 iPhones reserved and Unicom Huasheng reported “bookings” for more than 10,000 iPhones in their region. The primary China Unicom subsidiaries in Beijing and Shanghai have held on tight to their regional “reservations” data.
In addition, it should noted that the first six days in October were a national holiday in China. Many businesses were shut down over the 60th anniversary of the Chinese Communist Party. This no doubt slowed ecommerce and could have impacted the iPhone reservation program.
4) Kumar thinks pricing is a key issue – he says the phone is selling for 5,999 RMB for the 8 GB model, 6,999 RMB for the 16 GB version and 7,000 for the 32 GB version. Translated to dollars, that would be $879, $1026 and $1172.
Apparently Ashok hasn’t read through the price/plan charts now readily available on China Unicom’s website … or via iPhonAsia.* The price that Kumar reports via Savitz are for China Unicom’s “bare metal” iPhones options. “Bare metal” is a Chinese expression for “no contract.” China Unicom has many other iPhone price/plan options with generous subsidies that reduce the iPhone cost for “on contract” customers. There are even four (4) “free” iPhone options for those willing to pay a higher monthly rate.
There are a few points that should be made about the “reserve your iPhone” campaign. This online reservation system did not require any payment, but it did mandate that prospective buyers provide their national identity card information (tantamount to a social security number in the US). While ecommerce is gaining acceptance in China, the vast majority are reluctant to input their personal data online. Even a simple non-committal reservation might be met with hesitancy if it required inputting an identity card number. Finally, in China, most don’t buy or even “reserve” online. It’s cash on the barrelhead at the store and walk out with your merchandise.
NOTE: Apple’s China website is now actively > promoting iPhone in China
* China Unicom iPhone Price Plans: