Apple Inc. (AAPL): Time Is Ticking for a Cheaper iPhone in China

It shouldn’t be that big of a surprise. Apple Inc. (NASDAQ:AAPL) has long needed a cheaper device in China to compete with local vendors selling inexpensive Android devices. The second quarter of this year put Apple at the No. 7 spot, with just 4.8% market share in the largest smartphone market in the world.

Apple iPhone 5. Source: Apple.

Low-cost market moving without Apple
Here are some second-quarter 2013 facts staring Apple Inc. (NASDAQ:AAPL) in the face:

  • Chinese vendor Xiaomi — which launched two years after Apple Inc. (NASDAQ:AAPL) in China — shipped more phones than Apple.
  • Despite Apple growing shipments by 20%, it still lost share to Chinese smartphone makers.
  • Apple’s market share in China is the lowest it’s been since the first quarter of 2009.
  • Sales of iPhones in China are down 14% year over year.

Apple Inc. (NASDAQ:AAPL) defenders will say the company is on the eve of launching its lower-priced iPhone — the supposed iPhone 5C — and that this will turn the tide in the Chinese market. But I’m not so sure. As I’ve mentioned before, Apple’s iPhone is likely to be a lower-cost device — not a cheap iPhone. There’s a big distinction between the two for consumers.

With Xiaomi selling Android phones for about $130, Apple Inc. (NASDAQ:AAPL)’s low-cost savior coming in around an estimated $350 to $400 unsubsidized may help it nab a little more market share, but won’t unseat low-cost Androids that already dominate the market.

In the most recent quarterly earnings call, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook said, “I continue to believe in the arc of time that China is a huge opportunity for Apple. I don’t get discouraged over a 90-day cycle that could have economic factors.” While it’s true that looking at three months doesn’t provide a complete perspective on how Apple is doing, that statement seems a bit overconfident at the moment.