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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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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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. 
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.
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.
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.
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.
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 | 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 | 4:43:18 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 | 4:20:42 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.
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