Smuggled iPhones Not Hot In China - InformationWeek

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9/29/2014
11:20 AM
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Smuggled iPhones Not Hot In China

Demand for iPhone 6 and 6 Plus devices smuggled into China slows dramatically, even as Apple prepares to start selling the devices there.

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6 Things Not To Do With iPhone 6
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The Apple iPhone 6 has yet to go on sale officially in China, but that's not stopping smugglers from selling the phones on city streets and in back alleys. Black market sellers looking to make a quick buck, however, may have already exhausted early demand for the device -- which doesn't bode well for Apple.

"The gray market for the new iPhones has already dried up," reports The New York Times. The NYT estimates tens of thousands of iPhone 6 and 6 Plus handsets have been smuggled into China from Australia, Hong Kong, Singapore, and New York City. The black market is essentially flooded. One reseller has been forced to slash street prices from $1,960-$2,450 down to $1,060-$1,436. The iPhones netted wholesalers about $163 per handset, but with so many phones available and demand way down, black market operators may instead lose money on their iPhone stock.

How did the phones get there?

When the iPhone 6 and 6 Plus went on sale in the US on September 19, videographer Casey Neistat cased some of the lines at Apple stores in Manhattan and found a large number of Chinese customers waiting to buy the new devices. He asked them what they intended to do with their new phones, and many suggested the new phones were for themselves or for loved ones.

Neistat didn't believe them. He produced a six-minute video titled "Black Market Takes Over the iPhone 6 Lines" that has earned 2.8 million views so far. The video suggests that most of the Chinese buyers waiting in line to buy iPhones on launch day were there to make some cash by reselling the phones, and that many were there as a result of organized smuggling rings run by the Chinese mafia. (For the record, I'd estimate 90% of the people waiting in line to buy the iPhone 6 and 6 Plus on September 19 where I purchased mine in New Jersey were also Chinese.)

[iPhone 6: Dali Edition? Read Apple iPhone 6 Bendgate: Top 10 Tweets.]

Analysts disagree with Neistat's base assumption that a large criminal organization led to the lines witnessed in big cities on September 19. Linda Sui, an analyst at Strategy Analytics, told TIME, "They need money. Most of them are low-income people." In her view, many Chinese iPhone buyers were there to grab a device and turn it around to someone else who intended to ship it to China and resell it there. "In Chinatown there are small circles, so many people know each other," said Sui.

In the US, new iPhones couldn't be resold for more than about $1,000, leaving the original purchaser with a profit of $300 to $400 per device. The buyer then arranged for the phones to make their way to mainland China. Most of the devices entered via Hong Kong, according to the NYT, and were then sent via internal routes to large cities throughout the country.

When the iPhone 5s went on sale last year, it launched in China the same day it launched in other cities around the world. That put a damper on iPhone smugglers. This year, the iPhone's launch in China has been delayed as Apple has secured only one of two needed licenses to sell the device there. The company expects to secure the second license in time to commence sales this week, giving smugglers precious little time to recoup their investment before the phone can be purchased in stores. The slackened demand, however, is troubling.

iPhones were the hot phone to have in China several years ago, but in-country hardware makers have changed that story. Phone manufacturers such as Huawei, Xiaomi, and Meizu have stepped in with competitive handsets that cost far less. Though Apple sells tens of millions of iPhones in China, sales of Android-based phones from Chinese competitors number in the hundreds of millions. It doesn't help that the Chinese government has decreed US-made products undesirable.

Apple hasn't yet said when the iPhone 6 and iPhone 6 Plus will launch in China, but analysts will be watching closely to see just how well Apple does in the world's largest market for mobile phones.

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Eric is a freelance writer for InformationWeek specializing in mobile technologies. View Full Bio

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mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 2:35:02 PM
Re: Did anyone do some basic fact checking?
I'm not sure if we're on the same planet here.

I was NOT talking about Toyota or rare minerals!

I was ONLY talking about how the article fuels the incorrect perception that the iPhone is a US-made product and lists this as the primary factor in low Chinese demand for the iPhone 6.

You say in broken English 'everyone knows there is [sic] [are] very little [sic] [few]electronics made in US.'   You clearly HAVE NO IDEA WHAT FACT CHECKING IS, COMPLETELY PROVING MY POINT

A survery of iPhone and iPad owners shows that 54 percent said their hardware was made partly in the United States and partly overseas, 18 percent said entirely overseas, 8 percent said entirely in the United States and 20 percent said they did not know.

 

 
CunC132
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CunC132,
User Rank: Apprentice
9/29/2014 | 2:41:55 PM
Re: Did anyone do some basic fact checking?
If you don't understand the meaning of "made" vs "assembled", go back to elementary school. 
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 2:43:27 PM
Re: Did anyone do some basic fact checking?
Same case here? SERIOUSLY???

The iPhone has only 2 parts that are made in the US - the Gorilla Glass (but not the underlying LCD screen) and the processor.  

Do you seriously think that Apple ships boxes of US-made parts to China for assembly like your IKEA table?  Ever listen to a speech that Tim Cook made about this EXACT ISSUE?

FACT CHECKING PEOPLE!

It's called Google and it works.  Take 30 seconds to do a search before you post some ridiculous assumptions that have NO FACTUAL BASIS!
chadbag
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chadbag,
User Rank: Apprentice
9/29/2014 | 2:45:52 PM
maybe because legit ones will be here soon
I am surprised there was much black market in China in the first place and it bodes "nothing" for Apple.   Most people who want one have heard the news that legit legal iPhone 6 family phones should be avilable very soon -- rumors have it October 10 -- so why risk a much higher price on an illegal smuggled one?

 

 
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 2:47:17 PM
Re: Did anyone do some basic fact checking?
If your understanding of the iPhone is that it is "assembled" from parts that are "made" in the US, you should go back to Kindergarden to learn how to use Google!

Out of the hundreds of parts it contains, the only ones "made" in the US are the Gorilla Glass (but not the underlying LCD) and the processor.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
9/29/2014 | 4:15:58 PM
Slack demand for iPhones...
...tells me more about the unpredictable nature of the gray market than about Apple's prospects in China. Maybe Chinese consumers just know a bad deal when they see one.
Lorna Garey
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Lorna Garey,
User Rank: Author
9/29/2014 | 4:20:42 PM
Re: Did anyone do some basic fact checking?
I think it's clear that the meaning is, from a US company. It's very difficult to label any complex item as made in one country or another; see previous Toyota comment. Apple, like Microsoft, is a US company and the branded products they put out are US products. Arguing over semantics misses the point of the article.
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 4:43:18 PM
Re: Did anyone do some basic fact checking?
My point was about fact checking, NOT about semantics.

The lack of fact checking leads to confusion, such as the majority of people thinking that an iPhone is US-made (or assembled or made from primarily US parts, neither of which is the case.)

How could you possibly know what the author meant, when they clearly said something different?

To drive my point about fact-checking home, and to counter your argument about Toyota, it's VERY EASY (and legally required) to list the percent of a Toyota (or any car) that is US-made - it's right on the window sticker (called the Monroney label) and the percent of US content and the assembly plant must legally both be listed.  For example, the Camry has 75% US content, and the final assembly is in the US, so this would be characterised as a US-made car produced by a Japanese company. The Prius has 5% US content and is assembled in Japan, so it would be considered a Japanese-made car produced by a Japanese company.

Again, I trying to point out that the article lacked basic fact-checking (see my example above to counter your Toyota argument.) I was not trying to make a statement about cars or electronics.  This lack of fact checking also led to the articles erroneous conclusion about the iPhone being a 'US-made' product being the primary cause of low sales rather than the crackdown on corruption (or possibly a non-marked up version of the iPhone being available in a few weeks.)  

My very relevant argument is that the article's point is invalid because of a lack of fact-checking.
Lorna Garey
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Lorna Garey,
User Rank: Author
9/29/2014 | 4:48:44 PM
Re: Did anyone do some basic fact checking?
I see your point and would sub in "US-branded" product for "US-made" -- however, the author's overall point stands, in my opinion. I doubt anyone who pays attention to this market was confused.
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 4:56:42 PM
Re: Did anyone do some basic fact checking?
I respectfully disagree.


We'll see what happens in a few weeks when the iPhone 6 is available without a markup.  If the sales are substantial (as I predict they will be) then clearly the fact that it is a US-BRANDED product will have nothing to do with the slow sales of smuggled, marked up phones.

I believe that the reasons for the slow sales are because after the recent crackdown, corrupt officials with money to burn do not want to draw attention to themselves by showing off an iPhone that was bought early and at a substantial mark-up and that the average smartphone buyer that can afford an iPhone will wait a few more weeks to purchase it at the regular (not marked-up) price.

The fact that it is a Chinese-made, US-BRANDED product has nothing to do with slack demand (that is the point that the article makes.)

While I'm not a professional journalist, I worked on my school papers in HS and College and know the importance of fact-checking.  An article must be written accurately (which is where the fact-checking comes into play) for ANYONE who reads it, not just for people who pay attention to this market.

I will revisit this in a few weeks after the iPhone goes on sale in China officially and will admit if I'm wrong (but reserve the right to gloat if I'm right.)
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