There's Trouble Brewing for Apple in China


Things haven't been working out for Apple in China these days.

Shares of the consumer tech giant fell 3% yesterday -- falling to levels last seen in late July -- after The Wall Street Journal reported that China Telecom was cutting the subsidies that it pays to make the costs of Apple's smartphones more manageable.

The iPhone 5s is being sold on the wireless carrier's website at a two-year contract price that translates to roughly $392. That's 27% higher than last year's iPhone 5. This would be news to cheer Apple investors if it was the one commanding the markup, but it's just a grim sign that Apple's devices aren't likely to sell in large enough numbers this cycle to warrant heavy subsidizing.

Apple's prospects in China seemed to be on the rise ahead of last week's iPhone event. Scheduling a press event in Beijing just hours after its stateside reveal seemed to suggest that the class act of Cupertino would finally be striking a deal with China Mobile and introducing the cheaper smartphone line that would woo mainstream wireless customers worldwide.

It wasn't to be on either front. China Mobile has still not officially started offering the iPhone. The iPhone 5c also isn't the "cheap" device that the market was expecting. The unsubsidized price of $549 domestically -- and a steep $733 in China -- won't make the device any more compelling than the prior year's model that Apple keeps around at $100 less than the new incarnation.

It gets worse.

China Unicom blogged about taking in excess of 100,000 iPhone 5s and iPhone 5c reservations as China's second largest carrier. That's less than half of the preorders it received during the first two days of iPhone 5 availability last year.

China isn't all that different than the rest of the world, embracing Google's Android as the platform of choice. Apple may be second fiddle to Samsung here, but in China there are six companies selling more handsets than Apple with Android being the mobile operating system of choice. Apple's share of the market is now down to 5%, and that's not likely to grow with even pricier phones this time around.

Apple's decision to ignore the entry-level market and its inability to strike a distribution deal with China's largest mobile carrier aren't the end of the world. The deal with China Mobile can still come around, and you never know if Apple comes through with a price cut on its 5c line if they're not selling briskly. We don't have to wait until next year to see if Apple can get it right with the next generation. However, all the buzz that Apple and its stock were building through August and September has gone away. We're back to where we were in late July, only this time lacking the hope that Apple will get it right with this year's iPhone lineup to rock the world.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, China Mobile, 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.

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