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Apple Senior Vice President of Worldwide Marketing, Phil Schiller, introduces the iPhone X during a launch event in Cupertino, California on September 12.   © Reuters

iPhone X has to excite Asia, but will it?

Region's consumers are getting used to less expensive smartphones

YUICHIRO KANEMATSU, Nikkei staff writer | North America

PALO ALTO, U.S. -- Apple has a lot riding on the iPhone X. The smartphone's 10-year anniversary model has to excite Asian smartphone users all over again. Otherwise a visible decline in Apple's regionwide market share could recede even further.

Apple introduced its premier smartphone here on Tuesday. The handset got a lot of attention for dropping the home button in favor of some rather impressive facial recognition software.

Instead of letting users unlock the handset with a fingerprint, the iPhone X will ask owners to look at it. The software then uses an infrared camera to gather facial information from 30,000 points. It even works in the dark.

While Apple has worked to reduce the response time of fingerprint authentication, meant to protect personal information, there is still a lag period to find the button. The new software offers a more seamless unlocking experience.

The missing button creates no hurdle to unlocking the iPhone X. But upon picking up a device without the recessed tab, I felt a bit puzzled. Once I get past the lock screen, my instinct is to press the button when I want to return to the home screen. Now I have to push the screen and do some swiping.

This is not as intuitive as playing with old models, so people new to smartphones might get stuck when trying to move from one function to another on the iPhone X.

On my own phone, the button sometimes gives me a sense of relief (Get me out of this App!), and it is easy to operate. Just press to go home.

The Asian competitors

The new phone makes its debut amid tighter competition with its Asian rivals. China's Xiaomi unveiled a razor-thin smartphone, the Mi Mix 2, on Monday, a day before wraps came off the iPhone X. Featuring a liquid crystal display panel that stretches to the edges and a high-resolution camera from Japan's Sony, the new Xiaomi handset will compete with upcoming iPhones on both the design and price fronts.

The Mi Mix 2 will go for 3,299 yuan, or $500.

Tuesday also saw South Korea's Samsung Electronics host a media day for its Galaxy Note 8, which will hit shelves on Friday. A 6.3-inch active-matrix organic light-emitting diode, or OLED, display, cordless charging, waterproofing and safer batteries are some of its features.

As things stand, Samsung is the world's largest smartphone maker and controled 23.3% of the global market in the first quarter of 2017, according to market research company IDC. Apple had a 14.7% share. China's Huawei came in third at 7.5%.

In the world's largest market, mainland China, Apple lost its fourth place ranking to Xiaomi in the second quarter, according to Canalys. Trailing Huawei, Oppo, Vivo and Xiaomi, the iPhone is no longer the smartphone of choice among Chinese.

The "animoji" bet

According to Atsushi Osanai, a professor at Waseda University, "Apple will increasingly depend on the Japanese market, where the iPhone retains roughly 50% of the market."

Everywhere else in Asia, the smartphone has become a commodity, and there is a race to the bottom in terms of pricing. But even in Japan, Apple's dominance is not a foregone conclusion.

One reason Apple has been able to dominate in Japan is because of Samsung's weakness. But more importantly, the country's carriers, especially SoftBank, could offer easy-on-the-wallet packages in the hope of expanding their shares of the market.

The iPhone was not too expensive for them to procure. The reasonable prices that resulted would attract more customers. An economy of scale would develop allowing carriers to continue offering incentives.

But with the pricey new iPhone X, the carriers could be on thin ice. "In Taiwan, Apple's market share went from around 50% to 10% after carriers there stopped offering incentives," Osanai said.

"If in the future Apple were to lose the Japanese market, it could have a huge impact on the continuation of its operations," Osanai said.

In this regard, it is betting on "animoji," a kind of animated emoji that the facial recognition software creates based on a user's expression. Just look at your camera, and an animated pictogram is displayed that captures the emotion written all over your face.

It is an outstanding feature that reacts to subtle lip movements with agility.

The 34,000 yen premium

The old fingerprint authentication system does a good job of recognizing a smartphone's user, but the animoji born out of the new facial recognition software is just plain fun.

The iPhone X's camera, meanwhile, should be able to create sharper images and let users add special effects to their photos thanks to blur correction and other new tech.

In short, people who know their way around smartphones and are eager to play with something new should be satisfied with the iPhone's 10-year anniversary iteration.

Apple on Tuesday in California also unveiled the iPhone 8 as the successor to the current iPhone 7. The update allows for better photography and has a faster processor. But overall, there are disappointingly few changes from the current phone.

So back to the iPhone X. Much of the new hardware -- the thin, bendable layer of organic light-emitting diodes that offers richer images on the edge-to-edge display, the wireless charging technology, even the lack of a home button -- have already been adopted by Samsung Electronics and other smartphone brands. The new iPhone is playing catch-up.

Now that smartphones have matured, brands have to differentiate themselves by coming up with new ways for their gadgets to entertain the connected hordes.

In Japan, the iPhone X will cost 34,000 yen ($309) more than the base iPhone 8 model. Who will pony up the extra 300 bucks? Probably all kinds of people, from power users to Apple otaku.

Stationed inside factories

Apple has maintained design continuity out of consideration to iPhone users who might get frustrated by frequent form factor changes and a constant river of added functions. This business model has also made it easier for Apple to procure parts for the hundreds of millions of smartphones the company sells each year.

Relying on iPhones for more than 50% of its sales, Apple cannot afford to take a lot of risks with its franchise superstar. But the company's cautious approach has aroused criticism. Its fans, not to mention Wall Street, are always looking for Apple to out-do itself.

This time, Apple dealt with the dilemma by unveiling two new iPhones, an upgrade to the iPhone 7 and the 10-year anniversary model.

But the iPhone X will not go on sale until Nov. 3. This is an unusual delay. The iPhone 8, by comparison will be in consumers' hands on Sept. 22.

Apple CEO Tim Cook

The delay speaks of procurement problems -- something Apple mostly avoids by its adroit handling of its supply chain, where CEO Tim Cook first made a name for himself.

Facial recognition modules were delayed due to the supplier's inability to meet Apple's quality standards. And Samsung, a global leader in OLED, is even struggling to supply the iPhone X with displays that meet Apple's exacting specifications.

Procurement is a common problem among smartphone makers, who have to compete against one another for the capacitors and other electronic components that are stashed inside their devices. They even station representatives inside suppliers' factories where certain parts are made. These representatives are there to ensure that the supply chain keeps moving along.

More enjoyable

Officials at major suppliers of core components all say Apple demands that suppliers provide parts with new functions rather than simple improvements. Apple also expects suppliers to automatically cut prices of commoditized parts by 10% every year and that they give it the lowest prices in the industry.

Nevertheless, Apple remains an irreplaceable partner.

The iPhone X will start at 112,800 yen. This is the highest starting point for any iPhone (Apple's first smartphone went on sale in the U.S. in 2007 for about half that, $499). But the eyebrow-raising price likely will not hinder sales.

Apple's stringent quality standards, the iPhone's luxurious feel, the company's ability to help its customers enjoy new technologies and Apple's refined marketing all make for a powerful brand that does not have to compete on price.

Unveiling the iPhone X, Cook described it as "the future of the smartphone."

Perhaps he is right. The iPhone X offers a glimpse of a future in which the smartphone is both a necessary tool and a fun toy.

As for the glimpse of the future that I got while fiddling with the iPhone X? Life is going to be more enjoyable but little changed from today.

Nikkei Asian Review Chief Desk Editor Ken Moriyasu contributed to this report.

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