It's worth noting that Apple has one big disadvantage in China that doesn't apply in markets like the United States: Customers in the country aren't as locked in to the Apple ecosystem. It's a much different situation than in the United States, where Apple's reputation for having the best apps and the most content keeps users hooked.
Ronan de Renesse, principal analyst for Analysys Mason, noted that Apple's version of iTunes in China offers only apps and ebooks, and unlike in the U.S. and elsewhere, Apple can't simply build on a decade of consumers using iPods. Alternative app stores abound, including pirated versions of iTunes; and according to analytics firm Umeng, 30 percent of iPhone users in China jailbreak their devices. The customers who do want to use iTunes face roadblocks: As Bloomberg Businessweek points out, service can be slow because servers aren't based in China, and Apple only added the ability to pay with local currency a couple of years ago. Carrier billing still isn't an option.
"The cost of ramping up iTunes and enforcing the content lock-in in China would be very high for Apple and would not guarantee results," de Renesse said. He believes Apple can find other ways to boost sales and be successful in China even with a small percentage of the market.
Signs of hope
Analysts are now hoping for a few quick jolts to Apple's fortunes. In a first for the China market, the iPhone 5s and 5c were available in the country at launch, instead of being delayed by several months; the same is true of the iPad Air. Although the 5c isn't much different from the iPhone 5 on the inside, it does have some of the appeal of a new product, and it's reportedly being sold at a discount by some retailers in China, just as it is in the United States.
Those product releases are looking to bolster Apple's bottom line in China. In the fourth quarter of 2013, the company's revenue in the region rebounded slightly, bringing in $5.7 billion. That's up 6 percent year-over-year and 24 percent over the previous quarter. It's also significant, as Barclays analyst Ben Reitzes pointed out during Apple's fourth-quarter earnings call, that Apple was one of the few tech companies to actually grow in China during the quarter.
There's also been a lot of chatter about a possible deal between Apple and China Mobile, the country's largest wireless carrier; according to ISI, the carrier has more than 700 million subscribers, 180 million of which are 3G subscribers. Although Apple and China Mobile have negotiated for years, rumors suggest that a deal is imminent this time. "That single-handedly, we estimate, would drive 20 percent higher iPhone sales next year," Brian Marshall, an analyst with ISI told Macworld.
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