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Apple Inc. (AAPL)’s China Syndrome: iPhone vs. the World

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Let’s face it, Apple (NASDAQ:AAPL)’s iPhone, though a wonderful device, is seen globally as a high-end smartphone, one that many relish as not only a do-almost-everything handset, but also as a status symbol.

Apple Inc. (AAPL)

But, as much less expensive Android-driven phones become available in those parts of the world where price is definitely important, and status means less than putting food on the table, paying retail for an iPhone is out of the question.

Greater China (the mainland, Hong Kong, and Taiwan) is Apple Inc. (NASDAQ:AAPL)’s second largest market outside the United States, with $6.83 million from sales during its last fiscal quarter. But the iPhone fell two notches — to sixth place — in smartphone sales during the third quarter of 2012, according to research firm IDC. Samsung Electronics Co., Ltd. (KRX:005935) and Lenovo Group Limited (ADR) (PINK:LNVGY), were No. 1 and No. 2, respectively, ZTE Corporation (SHE:000063) was No. 4, and Huawei Technology Co Ltd (SHE:002502) was No. 5.

The threat to iPhone growth in China, however, comes from companies one may never have heard of in the U.S. Coolpad, for example, is the smartphone maker that jumped up three spots to become the third best-selling smartphone brand in China during that time frame.

But the real danger for Apple Inc. (NASDAQ:AAPL) in China and other emerging markets comes from companies like MediaTek Inc. (TPE:2454), the Taiwanese company behind those companies that have been taking China’s smartphone market share away from Apple Inc. (NASDAQ:AAPL). MediaTek is the company that has helped those other companies produce smartphones at prices Chinese consumers just can’t refuse.

MediaTek makes what’s called a “turnkey solution” to the problem of manufacturing inexpensive smartphones. It puts together the chipsets, the Android operating system, packages all that with instructions on how to build the phone, and provides technical support for those companies needing it. Why pay for the research and development of a smartphone when someone has already done it?

MediaTek’s turnkey systems have become so popular that, within 18 months of putting its first chipset in a Lenovo phone in 2011, its chipsets have taken 50% of China’s smartphone market, analysts told the New York Times.

Spreadtrum Communications, Inc (ADR) (NASDAQ:SPRD) is a Chinese company that is also in the turnkey smartphone chipset business.  It expects to ship between 80 million and 100 million of its smartphone chipsets in 2013, platforms that will end up in markets where consumers are just now moving up from feature phones to smartphones.

“To date,” says IDC, “much of the world’s smartphone shipments were a direct result of demand in mature economies such as the U.S.”

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