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New Apple products face Asian struggle against cheaper rivals

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Apple CEO Tim Cook speaks at the launch of the iPhone 6 and Apple Watch at the Flint Center in Cupertino, California, on Sept. 9.   © Reuters

CLAREMONT, Calif. -- New, larger iPhones, the versatile Apple Watch and wireless Apple Pay system launched recently will likely attract more users to Apple's portfolio of gadgets and apps, but the world's most highly valued company still faces an uphill climb in Asia.

     While Apple dominates the $500-plus range in China's mobile phone market, it has less than 11% of the country's overall handset market, which is the world's largest.

     But smartphones with screens growing to tablet sizes, or phablets as they are sometimes called, are increasing in popularity in Asia, so the iPhone 6 and 6 Plus models introduced on Sept. 9 by CEO Tim Cook should help satisfy that demand.

     "(We're) expecting a good reception for the iPhone 6 in phablet-happy Asia, especially among high-end status-conscious users in countries from China to Singapore," said Bryan Ma, Singapore-based vice president of client devices research for technology market researcher IDC. "We do expect the larger iPhone 6 Plus in particular to do well in Asia, a market that has already embraced phablets and will continue to do so."

     But iPhones remain extremely expensive for the majority of consumers in the key China market, meaning that lower-priced Chinese manufacturers "will likely still continue to carry a lot of the markets in Asia," Ma said.

     The high cost of iPhones "is why the domestic Chinese brands are so successful -- not because they're fantastic phones, but because they're really inexpensive compared to Apple," said Martin Reynolds, a senior analyst with technology research and advisory company Gartner. "So unless Apple finds some magic way to significantly reduce their price, and their profit, I don't expect there will be a huge jump in share in China."

     Apple's iPhone is the ultimate aspirational mobile phone in Asia -- it commands an estimated 80% of the $500-plus handset market in China -- but is routinely the most expensive.

     However the addition this year of China Mobile, whose mobile phone network is China's largest, will help boost iPhone sales. Because many consumers were locked into contracts with other carriers, there has not yet been a sharp uptake in iPhone users on China Mobile since it partnered with Apple in January, but a significant boost could come as users leave contracts with other carriers.

     Apple faces two drawbacks that will be felt particularly in India as well as in China, whose market of 351.3 million smartphones last year was two-thirds of Asia-Pacific's 530.2 million, and more than one-third of worldwide sales, according to IDC.

     One drawback is that initially the phones will not be available in India or China. They launch on Sept. 19 in the U.S., Japan, Germany, Singapore and a handful of other places including Hong Kong.

     China was among the first group of countries to sell the iPhone 5s and 5c, but was left out this time. It could be in retaliation for China Telecom and fellow telecom operator China Unicom posting photos of the iPhone 6 in ads on Sept. 5 seeking to sign up new customers. Apple is notoriously tight-lipped about upcoming products and is strict about guarding against photos and other details being leaked to the public.

     "It really doesn't make sense that Apple continues to treat the Chinese consumer as a second-class citizen," said Shaun Rein, founder of Shanghai-based China Market Research Group and author of the forthcoming book, "The End of Copycat China," about Chinese innovation. "Because of better Google Android platforms, and rising cheaper domestic brands such as Xiaomi, Huawei or Lenovo, Apple can't afford to treat Chinese consumers, I think, with what looks like disdain and contempt."

     The other disadvantage is that iPhones cannot accommodate dual subscriber identity module (SIM) cards, which can be a major handicap in markets such as India and China, where consumers are sensitive to pricing on data plans. Migrant workers, particularly in China, appreciate having two SIM cards in their phones -- one for incoming calls that they keep, and one for outgoing calls, which they change depending on where their jobs take them.

Something to watch

The new Apple Watch is the company's first new product release in four years. While it is certain to intrigue early adopters, it requires an iPhone 5 or 6 to make use of its functions. And with a starting price of $349 it risks being seen as both out of reach for many potential customers and far from exclusive enough for the wealthy. Luxury timepieces, like cars, are coveted as signs of financial status in many Asian societies, where the wealthy seek out marques such as Breguet, Patek Philippe or Audemars Piguet.

Apple Watch

     "The watch is at an odd price point. It's not expensive enough, but not cheap enough, for the China market," said Rein. "I think a lot of Chinese will save up to buy a more expensive, luxurious watch."

     IDC's Ma agrees that Apple's watch may simply not be enough of a status symbol to garnish the wrists of the truly affluent. "Luxury watches are a big thing in many parts of Asia," Ma said. "It will be interesting to see if Apple's more premium Watch Edition line will be perceived by consumers here as carrying as much status as, say, a pricey (Officine) Panerai watch."

A not-so-new way to pay

Apple Pay, which CEO Cook said will allow shopping, opening hotel rooms and paying for drive-thru fast food with a single swipe, will also face challenges in Asia. Apple did not say where it plans to roll out the service overseas.

     "The e-commerce digital world in China is far ahead of what's going on in the U.S., and people are more comfortable paying online here," said Rein. But, he added, "Apple Pay could work in other markets in Asia that are looking for a dominant digital payment system."

     Ma called Apple Pay "a game changer," but thinks the rollout will be slow in Asia, if it happens at all. "I'd argue that most countries in Asia are very cash-based, so it will take some time before we see more widespread adoption," he said.

     Asian suppliers will benefit if there is sustained excitement for Apple's new hardware. Many Apple components are sourced in Japan, South Korea, China and Taiwan. Cook told an interviewer, however, that the company is mindful of the importance of "Made in America," and that components for the iPhone and Apple Watch come from 22 of the U.S.' 50 states.

     If Apple is to make a sustained impact in Asia with its new releases it will have to figure out how to win over Chinese customers such as Xu Chenhan, 25, from Zhejiang Province, who is studying for a year in Australia and is happy with her Samsung Electronics Galaxy phone and its Android operating system.

     "IPhones cannot connect with other smartphones or PCs via Bluetooth," she said following Apple's iPhone 6 announcement. "You will have to use a Mac or iPod or iPad. Once you start using one Apple product you have to use all of them and I hate that. I don't want my life to be hijacked."

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