Is it even possible for smart phone makers to build, sell, and market a phone in China markets while holding onto the smart phone identity? The answer is a resounding yes, as according to Business Insider the total cost of making an Apple Inc. (NASDAQ:AAPL) iPhone is $209.
Case for Apple in China
Apple Inc. (NASDAQ:AAPL) needs to gain a foothold in China as it would be unwise to leave one of the fastest growing markets in the hands of HTC Corp (TPE:2498), Samsung Electronics Co., Ltd. (KRX:005930), and Sony Corporation (ADR) (NYSE:SNE). That being the case, Apple has to market its phone to Chinese consumers at a price that the Chinese may be able to afford. The $100 to $300 range for phones is the sweet spot for Chinese consumers. Data plans are not expensive enough in China to cover the cost of phones, whereas in the United States. United States consumers may spend $2,400 throughout the life of a phone contract, making up for the $800 retail price Apple Inc. (NASDAQ:AAPL) has set for its iPhone.
China’s GDP per capita has grown from a modest $1,500 to $5,444 in the span of just 8 years. The phenomenal growth in the amount of economic activity per person is incredible. However, while the growth rate is superb, the GDP Per Capita figure of $5,444 implies that the average person may not be able to afford an $800 iPhone.
In response to this, Apple Inc. (NASDAQ:AAPL) will be selling phones at a cheaper price using QUALCOMM, Inc. (NASDAQ:QCOM) chips.
Qualcomm a significant beneficiary
QUALCOMM, Inc. (NASDAQ:QCOM)
can sell its Snapdragon chips in even greater volume. In the first quarter, QUALCOMM, Inc. (NASDAQ:QCOM) was able to report 14% year-over-year growth in mobile processing. With shipments projected to increase by around 22.7% in the following quarter. Qualcomm plans to sustain this double-digit growth by expanding into China. Qualcomm could be a larger beneficiary than Apple Inc. (NASDAQ:AAPL) because Qualcomm relies heavily upon volume. Currently QUALCOMM, Inc. (NASDAQ:QCOM)’s unit prices according to Arik Hesseldahl
is $20 per unit. A larger number of shipments to China in the form of higher-end smart phones will lead to higher margins compared to the low-margin business of low-end phones.
Don’t forget about Baidu.com, Inc. (ADR) (NASDAQ:BIDU)
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is the leading web property in China. As Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) have both been banned from the country, it is likely that Baidu will be the primary mobile software provider in the Chinese market. That being the case, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) offers both search and social networking services through its mobile products. The difficulty in mobile that Baidu may be experiencing is in the quality of the phones.