Is This Apple's Next Big Threat in China?


If you think Samsung is Apple's biggest threat in China, think again.

If you're like many investors, you're probably still marveling at the fact Apple sold a record 9 million iPhones during its global launch last weekend.

Of course, Apple achieved that huge number largely thanks to its decision to add China to its list of first-day iPhone recipients. By contrast, Chinese consumers last year had to wait nearly three months after the initial U.S. launch to receive their shiny new iPhone 5 models.

Curiously enough, however, despite speculation that Apple's lower-cost iPhone 5c this time around was being designed to target China's fast-growing middle class, a Localytics survey of 20 million iPhones conducted 72 hours after the most recent launch showed 91% of Chinese consumers opted for the thinner, more powerful, and more expensive iPhone 5s.

To put that into perspective, that's a higher percentage than in any other country except Australia, far outpacing the average iPhone 5s preference rate of 78% worldwide.

As a result, it's safe to say Chinese consumers don't mind paying a little extra for high-end smartphones.

Then again, it could also have something to do with the fact the colorful iPhone 5c is still being sold for just $100 less than the iPhone 5s, so you can't help but wonder how much the results would have shifted in Apple's favor had it actually unveiled a significantly less expensive device in lieu of the 5c.

Apple's not the only dog in this fight
This in mind, we shouldn't forget Apple's not the only high-end smartphone maker trying to win over the world's most populous nation.

After all, recall Apple's Greater China revenue was down notably last quarter. In fact, Apple's Greater China segment was the only one which didn't experience a year-over-year increase in net sales and unit sales of iPhones last quarter.

For that, Apple can thank more established Chinese competitors like Huawei and ZTE, both of which broke into the top five global smartphone vendors in terms of unit shipments and market share in the fourth quarter of 2012.

A new Chinese contender
But there's another company entering the scene which has grown by leaps and bounds over the past year.

Meet Xiaomi, a privately held Chinese smartphone maker which recently took to Twitter to say its flagship Android-based Mi2 series smartphones have sold more than 10 million units since launching just 11 months ago.

Xiaomi Mi3, Image source: Xiaomi.

Sure, that doesn't sound like much, considering Apple sold 9 million devices last weekend alone, but consider the fact Xiaomi was founded less than four years ago.

If you recall, just a few weeks ago Xiaomi unveiled its next flagship smartphone in the Mi3 which, incidentally, will be the first-ever smartphone to feature NVIDIA's high-end Tegra 4 processor.

Though the Tegra 4 has already found a home in a number of higher-performance tablets already -- including NVIDIA's own recently announced Tegra Note tab -- NVIDIA was naturally tickled by the prospect of powering a fast-growing, high-powered smartphone, especially as it's currently waiting for its first fully integrated 4G LTE processor, the Tegra 4i, to complete the required certification processes with a number of leading mobile carriers stateside.

But Xiaomi isn't focusing entirely on the high-end market, either. In fact, when Xiaomi announced its most affordable smartphone to date this July, a $130 quad-core phone dubbed "Red Rice," it quickly racked up 7.45 million reservations and sold out of its first batch of 100,000 units in 90 seconds.

And Xiaomi is only getting more popular by the day. During the first half of 2013, the company has sold 7.03 million devices, or nearly as many as the 7.19 million phones it sold in all of 2012. As a result, last month Xiaomi even raised its sales target for all of 2013 by a third, to 20 million smartphones.

Worse yet for Apple, Xiaomi even overtook the Cupertino-based tech giant in Q2 for sixth place in the Chinese smartphone market. Of course, that could potentially change given Apple's latest iPhone release, but you can bet Xiaomi will do everything in can to maintain its torrid growth and continue rising up the ranks.

On Wednesday, Xiaomi even announced the impending opening of an Apple-esque Xiaomi "flagship shop" in Beijing to reside at the popular Wangjing mall. Incidentally, the same location also boasts an official Apple retail store.

And remember, Apple currently only has eight official retail stores in the Greater China region, which means they've built just one new location since fellow Fool Evan Niu discussed Apple's retail plans last October. That's a stark contrast to the plans from former Apple retail chief Ron Johnson, who said nearly three years ago the company was hoping to have 25 retail stores in China in the near future.

That doesn't mean Apple is a lost cause in China, especially when it has yet to announce a widely anticipated deal with the country's largest carrier, China Mobile, which would allow it access to a staggering 745 million new subscribers. In the meantime, however, Xiaomi already has a deal in place with China Mobile and is taking every advantage to build on its lead.

All things considered, then, don't be surprised if Xiaomi's explosive growth quickly propels it to the head of the pack in China in the coming years.

Here's what Apple needs to do to succeed
Do you know the major developments that could crush Apple? The secrets to success that could make investors like you rich? The answers are simpler than you think, and The Motley Fool is sharing them in a free report titled, "5 Secrets to Apple's Future." Inside, we outline critical information every Apple investor must know, so click here now for your free report.

The article Is This Apple's Next Big Threat in China? originally appeared on

Fool contributor Steve Symington owns shares of Apple and NVIDIA. The Motley Fool recommends Apple and NVIDIA. The Motley Fool owns shares of Apple and China Mobile. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.