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China iPhone market demand projections

 

Some industry reports indicate Apple could soon be announcing a partnership with China Unicom to distribute the iPhone across mainland China. While VentureOutsource.com is unsure of the pending partnership, reports are providing insight into what Apple’s China iPhone venture could bring.

Meanwhile, China Unicom is in the process of rolling out 3G service to 55 major Chinese cities in the first half of 2009 and believed to be extending coverage to 282 cities in China by the end of 2009.

A report prepared and distributed by investment bank Deutsche Bank, with development help from the firm’s Asia colleagues, estimates China Unicom’s subscriber base (i.e., 2G and 3G) at roughly 150 million subscribers in 2009, growing to 170 million in 2010.

The report goes on to speculate if Apple were able to secure terms similar to those with U.S. and European carriers, the bank believes even modest penetration of this installed base could prove highly profitable.

It’s also believed Apple could reasonably sell roughly 1 million iPhones in China in calendar year 2009 if an agreement is signed this fall and possibly 3 million to 5 million iPhones in China in calendar year 2010.

 

Figure 1: China smartphone estimates (units in thousands)

China smartphone volume estimates

 

Large and growing Chinese handset market
As highlighted in the report figures below, the Chinese wireless phone market (2G and 3G) is sized at roughly 180 million units and growing at 4% year-on-year. (OEM Exclusive: Request list of EMS/ODM providers anywhere in China or the greater Asia region)

According to industry research firm Gartner which provided much of the findings for the report, the key area of growth within the Chinese handset market is in the smartphone segment which is on schedule to hit roughly16 million units in 2009 and expected to grow approximately 70% year-on-year to 27 million units in 2010.

The report goes on to state the feature rich sub-segment of the smartphone market is most comparable to the iPhone (i.e., integrated functionality that includes music; video, gaming, pictures, browsing, mobile TV, navigation, messaging) and is estimated at roughly 7 million units in 2009 growing 50% to 11 million units in 2010 with wholesale average selling prices of approximately $400.

10% wireless representation in China
Smartphones represent roughly 10% of the Chinese wireless market. From the carrier perspective, Deutsche Bank’s Asia colleagues estimate Chinese wireless subscribers could total roughly 730 million in 2009 and approximately 850 million subscribers in 2010 and, 3G subscribers are a relatively small portion of this subscriber base at 12 million in 2009 (or 2% of total) and 72 million in 2010 (or 10% of total).

 

Figure 2: China wireless handset market (units in thousands)

China wireless handset market volume

 

Figure 3: AsiaPac mobile device wholesale prices, 2003 – 2013 (Dollars)

AsiaPac mobile device wholesale prices

 

China Unicom and 3G
In January 2009, China Unicom announced it obtained a 3G wireless license to implement W-CDMA (Wideband Code Division Multiple Access) technology across mainland China.

As mentioned earlier, China Unicom plans to roll out 3G service to 55 major Chinese cities by the end of 2009 and extend coverage to 282 cities by the end of 2009. Deutsche Bank’s colleagues in Asia estimate China Unicom could have 3 million 3G subscribers in 2009 and 10 million subscribers in 2010 (151 million 3G subscribers in 2015, +92% CAGR).

China Unicom’s aggregate subscriber base (i.e., 2G and 3G) is estimated at roughly 150 million subscribers in 2009 and 170 million in 2010.

 

Figure 4: China Unicom wireless subscribers (2G and 3G)

China Unicom mobile wireless subscribers (2G and 3G)

 

Apple, China Unicom may partner
Multiple media outlets are reporting a preliminary agreement has been reached between Apple and China Unicom, although neither Apple nor China Unicom has confirmed a formal deal.

In particular, Engadget reported that China Unicom won regulatory approval for the iPhone in China. Meanwhile, the report states Deutsche bank’s supplier checks also suggest a ramp of iPhone units manufactured specifically for the Chinese Market (without WiFi).

In aggregate, the bank predicts all indications suggest a Chinese launch is imminent. Deutsche Bank expects the iPhone to be a hit in China given the large number of Chinese data subscribers, the growing wealth of Chinese consumers and their propensity to buy consumer electronics.

While terms of an Apple / China Unicom partnership remain speculative at this point, as detailed below, even modest penetration into the existing China Unicom subscriber base could translate into substantial iPhone volumes estimates Deutsche Bank.

For instance, 1% penetration into China Unicom’s current installed base could translate into 1 million to 2 million iPhone unit sales in 2009 says Deutsche Bank in the report.

As a basis of comparison AT&T has 78 million wireless subscribers and activated 8 million iPhones over the past 12 months or, approximately 10% penetration.

Nokia leading smartphone in Asia Pacific
The report goes on to highlight (below) Nokia is the dominant handset vendor in the region with 80% share in AsiaPac followed by HTC at 5% share, Apple with 4% share (excluding China) while Research in Motion and Motorola have 3% share.

Deutsche Bank points out in the report that Apple’s AsiaPac market share is closely in third place and it does not yet even have an offering in China.

This could suggest Apple has ample opportunity to take significant market share in one of the most attractive mobile markets in the world as estimated by Deutsche Bank.

By comparison, Apple currently has 20% of the smartphone market in the United States which is all the more impressive when considering AT&T was an exclusive partner and Apple did not compete in the smartphone business prior to 2Q07 according to Deutsche Bank.

 

Figure 5: AsiaPac smartphone market share (1Q09)

AsiaPac smartphone market share (1Q09)

 

Source: Deutsche Bank, contributions by Malaka Paranavitane and Sachith Jayakody (Amba Research Lanka (Private) Ltd.), Gartner with VentureOutsource.com




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