Smuggled iPhones Not Hot In China - InformationWeek

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Mobile // Mobile Business
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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.

6 Things Not To Do With iPhone 6
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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Lorna Garey
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Lorna Garey,
User Rank: Author
9/29/2014 | 11:39:38 AM
Status
It all comes down to a status symbol -- what is that little logo worth? And to people who value such things, presumably being one of the first to have the phone, before the unwashed masses, is key. So yeah, seems like Apple should be worried.
Henrisha
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Henrisha,
User Rank: Strategist
9/29/2014 | 12:51:45 PM
Re: Status
Now that you bring it up... Recently I have come across ads for iPhone 6 "1 to 1 replica", which are obviously knock-offs, at about a quarter of the actual phone's price. If you see it as a status symbol, you wouldn't be quick to jump at this "bargain"-- unless you'll be showing it off only in pictures, because clearly it won't work or even look like an actual iPhone in person.
mejiac
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mejiac,
User Rank: Ninja
9/29/2014 | 1:24:22 PM
Re: Status
@Loma,

This same trend can be seen in other third world countries, where phones aren't restricted to the carrier, and even more so, the local service provide actually encourage the black market because they're willing to activate any phone as long as they can support it.

For both Iphone and Samsung, and like any product that it's trending, black market smuggling will always exist.

 
Whoopty
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Whoopty,
User Rank: Ninja
9/29/2014 | 12:45:17 PM
Grey markets, grey area
I was burned by grey market products once. After having picked up a stack of hard drives from a well known online retailer, a few of them failed and I found that neither my retailer warranty - which had as you might have expected, only just gone out of date - nor my manufacturer warranty were valid. The latter wasn't claimable since the product had been sold outside of its intended region, something I had no concept of at the time and wasn't aware of at the point of purchase.  

That particular company has cleaned up its act these days, but it's certainly something to watch out for and consider, especially if you know you're buying a product that's been shipped around. 
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 12:48:46 PM
Did anyone do some basic fact checking?
The article says 'It doesn't help that the Chinese government has decreed US-made products undesirable.'

There's no such thing as a US-made smartphone!  Motorola briefly tried it when it was owned by Google, but EVERY iPhone sold in both the US and China is made in China!

Furthermore, I witnessed the lines of Chinese buyers in Manhattan firsthand and while they definitely don't look to be associated with any organized crime syndicates, the buyers are NOT actually smuggling anything into China either.  I witnessed (and the Neistat video clearly shows) the buyers handing off the phones as soon as they leave the store.

The main reason iPhone demand has dropped is because of the recent government crackdown in China on corruption.  Conspicious consumption (displaying expensive phones, watches, cars, etc.) is considered an important marker of status in China but now it is also considered to be grounds for investigation if someone is one of the tens of millions of government employees in the country.

An article in a tech magazine should have some very basic fact checking done before it's published.
TerryB
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TerryB,
User Rank: Ninja
9/29/2014 | 1:17:00 PM
Re: Did anyone do some basic fact checking?
Instead of ragging on IW for "fact checking", check your comment for common sense. Who cares where it is manufactured, any legit sale of Apple product gives profit to Apple and thus US taxes. That is China's intent, they are being dinks because US has cracked down on them for dumping and quality/safety issues on their products. China doesn't care where they are made.

Nothing in your comment contradicts what Eric said. It's good point you make about corruption crackdown but who really knows the effect of that on black market items over there. Those long lines make a lot more sense now.
mmil105
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mmil105,
User Rank: Apprentice
9/29/2014 | 2:05:25 PM
Re: Did anyone do some basic fact checking?
Did you actually read the article?  

It clearly says 'US-made products' NOT made by a company 'that gives profit to Apple and thus US taxes.'  If you believe that the article says China didn't care where the phone was made, why would the article say 'US-made products'?

I always check facts before I write something.  Many people, both here and in China, incorrectly believe that the iPhone is a US-made product precisely because of articles like this.

You also seem to agree about my analysis about corruption - just do a Google search for 'iPhone 6 China corruption.'  However, corruption is not even mentioned in the article, yet it is listed as the predominant cause by many legitimate sources.  The fact the iPhone 6 is yet another Chinese-made smartphone (though it is designed by a non-Chinese company) is a secondary cause at best.

All I am saying is that I expected some better fact-checking from a Tech publication.  
TerryB
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TerryB,
User Rank: Ninja
9/29/2014 | 2:22:20 PM
Re: Did anyone do some basic fact checking?
You are opening a can of worms worrying about Mfg origins. Under your logic, Toyota would be a US product because we have plenty of manufacturing facilities here making Toyota's for US buyers. But none of profits stay in US.

Apple is a US based company, that is what China is targeting. And I'm guessing they wrote iOS in California. But everyone knows there is very little electronics made in US anymore. China's intent is to prevent US companies from gaining sales in their country, regardless of their mfg structure. Surely you understand that?

Because China is source of so many rare minerals, good luck finding anything electronic which doesn't have something from China in it, even if everything else done here.
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 | 2:47:17 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.
CunC132
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CunC132,
User Rank: Apprentice
9/29/2014 | 2:32:56 PM
Re: Did anyone do some basic fact checking?
Last time I checked "Assemble" does not have the same meaning as "make". I bought a damn iKea table which individual parts supplied and started assembling process to end up with a functional table. Did I "make" that table? fck no. I assembled it. Same case here.
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!
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.)
Lorna Garey
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Lorna Garey,
User Rank: Author
9/29/2014 | 5:01:32 PM
Re: Did anyone do some basic fact checking?
Deal! I'd be interested in a feature-by-feature comparison of phones by Huawei and other Chinese manufacturers vs. the iPhone 6 and comparable Android devices, like the new HTC One. Seems like if the native-made and branded devices have much the same capabilities, cost less and won't draw unwanted attention from the government, that's bad news for Apple (and HTC and Samsung).

Of course, the flip side is that platform selection is all about content. and Apple's content is sticky. If somene has invested a lot in iTunes music, for example, it's a tough call to leave iOS.
pcharles09
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pcharles09,
User Rank: Ninja
9/29/2014 | 11:31:16 PM
Re: Did anyone do some basic fact checking?
@Lorna G,

I'd agree with the sticky premise. They definitely know how to make it hurt to get on another device. I;ve heard horror stories from people that switched to non-iPhones.
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
9/30/2014 | 11:39:32 PM
Re: Did anyone do some basic fact checking?
pcharles, agreed. That's a significant achievement of Apple and other brands must learn and work on policies that encourages users to stay with the same brand. 
pcharles09
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pcharles09,
User Rank: Ninja
10/28/2014 | 7:56:08 PM
Re: Did anyone do some basic fact checking?
@WaqasAltaf,

I think all brands try to do that. It's just difficult to succeed at it.
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
9/30/2014 | 11:37:53 PM
Re: Did anyone do some basic fact checking?
Lorna, although I am not knowledgeable enough to draw a feature by feature comparison of Huawei with Apple but being a user of Huawei and having used Apple numerous times, I don't find iPhone much attractive. 

You made a strong point about investment in itunes etc. which is what results in sales of new iPhone version. Psychologically this has an impact but in Android, you don't have to spend extra either so switching just requires clarity of thought.
Lorna Garey
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Lorna Garey,
User Rank: Author
10/1/2014 | 11:43:19 AM
Re: Did anyone do some basic fact checking?
@Wagas, I think Google is trying to make Android sticky by tightly tying it to the Google docs/Gmail/other Google services ecosystem. But of course, one could use Gmail from an iPhone, while pigs will fly before you can listen to your iTunes library on a Samsung or HTC device!!
BillB031
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BillB031,
User Rank: Moderator
10/2/2014 | 10:27:11 AM
Re: Did anyone do some basic fact checking?
@Lorna,  You don't need iTunes on an android device. You can port your library over to Google music.  https://play.google.com/about/music/unlock/
Lorna Garey
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Lorna Garey,
User Rank: Author
10/2/2014 | 10:30:12 AM
Re: Did anyone do some basic fact checking?
Really? Wow, I did not know that, thanks for the info. And it actually works?!
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
10/18/2014 | 1:40:36 AM
Re: Did anyone do some basic fact checking?
Lorna

:) Yesterday I had a heated discussion with a friend on how many years it will take when Samsung bypasses Apple's popularity without any doubt. The common point we both made, with me being a Samsung fan and he being an Apple fan, that if iTunes etc. are done away with, that time might get delayed ahead.
mejiac
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mejiac,
User Rank: Ninja
9/29/2014 | 1:28:13 PM
Laws of Offer and Demand
Erick,

First, great article!,

Like any given product, if it's somethign that's trending and also part of a fashion statement, it'll have a black market behind it.

This is obvious in many fashion clothing articles, so smartphones aren't shielded from it.

Same goes for Laptops and tablets... if it's something that consumers want desperatly, then a profit can be made of it.

Like you mentioned, I was monitoring ebay sales out of curiority, and was amazed at the prices people were paying for the Iphone 6 (versus simply being patient and wait for supplies to re-stock).

But here's a question: do companies like Apple and Samsung tend to fight it? or simply accept it as a byproduct of the popularity and demand they're seing with there flagship products?

What does the community think?
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?

 

 
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.
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
9/30/2014 | 11:33:15 PM
Re: Slack demand for iPhones...
Thomas, agreed. iPhone is more of a trade commodity there rather than a brand demanded by majority for use.
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
9/30/2014 | 11:30:41 PM
Price differentials make sense in China
Eric, that's an interesting story. However, being kind of anti-iPhone person, I do know how well Huawei and other brands are. I am a user of Huawei. And having used an iPhone too, I can compare the difference and the price differential doesn't make sense. And my observation does make sense in China where the income-levels are not pretty high. Bad for smugglers this season.
Li Tan
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Li Tan,
User Rank: Ninja
10/2/2014 | 10:34:30 AM
Re: Price differentials make sense in China
You are quite right, my friend. Here in Beijing the price of iPhone 6 decreased drastically in the past 2 week. It's indeed a bad season for smugglers. I heard a story that one guy purchased a lot of iPhone 6 in order to earn a big amount of money. But in one week he suffered about 160K USD loss...sounds awful and threatening...
PedroGonzales
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PedroGonzales,
User Rank: Ninja
10/2/2014 | 2:06:09 PM
Re: Price differentials make sense in China
I wonder whether the chinese government is doing more to curve iphone black market sales.  I think Apple's strategy to release their products at the same time all over the world helps to reduce such efforts.  does anything think that public education or more policy government would work to reduce such sales in the future. 
WaqasAltaf
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WaqasAltaf,
User Rank: Ninja
10/18/2014 | 2:26:02 AM
Re: Price differentials make sense in China
Li Tan, ohh. $160k is quite a big amount. I am sure he must have invested this money without analyzing the features of iphone 6 and the market competition in hand in China. 
Michael Endler
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Michael Endler,
User Rank: Author
10/2/2014 | 1:44:30 PM
2 million orders in six hours
The first reports about pre-sales in China indicate more than 2 million iPhone 6 and 6 Plus reservations in the first six hours. And people are buying the more expensive configurations, not the 16 GB entry models. Seems like demand is pretty healthy. Perhaps people realized they could just wait a few weeks and avoid the black market surcharge.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Author
10/4/2014 | 12:21:32 AM
Alternatives
Plus, you could just get a bootleg fake iPhone for much cheaper in China -- even from a bootleg/fake Apple Store!  ;)
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