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Business

Apple turns spotlight on Japan to tighten slipping grip

TOKYO -- Apple's iPhone 7 announcement Wednesday showered a surprising amount of attention on Japan, as the company seeks to turn around its fortunes here amid scrutiny from antitrust authorities and signs that suppliers are turning elsewhere for business.

Among the features highlighted at the event in San Francisco was improved contactless payment. Apple plans to kick off the next wave of the Apple Pay service's global expansion with Japan. A mobile game featuring Nintendo's beloved mascot Mario is in the works as well.

Japan's top wireless carriers -- NTT Docomo, KDDI and SoftBank -- are awaiting the new iPhone with bated breath. The handset will serve as one of the few points distinguishing the big three from increasingly popular budget carriers. SoftBank, a unit of SoftBank Group, has come out of the gate swinging with a 60%-plus discount on a plan offering 20 gigabytes of data per month.

Apple's honeymoon with the three carriers looks unlikely to end anytime soon. Why is the smartphone titan suddenly turning on the charm in Japan and letting up on its once-aggressive tactics?

Under the microscope

Apple is struggling in emerging markets, where Chinese rivals have enjoyed striking growth. And now a gradual shift away from the iPhone is underway in Japan, once a guaranteed gold mine for the company.

Japan's Fair Trade Commission warned in August that restrictions by smartphone makers on the resale of used handsets could violate antitrust laws. Though it did not name names, the industry seems to agree that the watchdog had Apple in mind. This comes on top of long-standing accusations that Apple's contracts with carriers include unfair terms, such as requiring that iPhones make up a certain portion of new-phone sales.

Apple's Japanese arm has taken the situation seriously. It abruptly released previously top-secret data showing $30 billion in orders from 865 Japanese suppliers of components and materials last year. This seems to be a clear attempt to keep public opinion on its side by highlighting its contribution to the Japanese economy.

Diversification

But consumers are not the only ones seeking greener pastures. Japan's electronic component industry learned a painful lesson after disappointing sales of the iPhone 6s, which launched last year, forced sharp production cutbacks. Suppliers worried about overdependence on Apple are stepping up sales to South Korean and Chinese smartphone makers.

At TDK, for example, business customers from those two countries accounted for about 50% of sales of smartphone components a year ago, a figure that has since risen to roughly 60%. "Shipments to Chinese smartphone makers in particular have grown," said director Tetsuji Yamanishi.

Alps Electric has been focusing more on Chinese smartphone companies for the past few years. China-bound orders now make up 30% of smartphone parts sales by volume, up from 10-20% two years earlier, director Yoichiro Kega said.

The increasing sophistication of Chinese-made handsets has created growing demand for high-performance parts, a specialty of Japanese companies. High-quality Chinese phones featuring components made in Japan pose a threat to Apple's dominance.

The lack of significant design or functionality changes in the iPhone 7 leads many to believe that it is just an interim model until next year's new product. The possibility that Apple's next offerings could be a hit makes it difficult for Japanese suppliers to turn their backs on the company. Yet it seems clear that the bond is not as iron-clad as it once was.

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