Thursday, April 2, 2009

Apple's iPhone, an Indian Flop, Prepares for China

Apples iPhone, an Indian Flop, Prepares for China

Take the most talked-about phone in recent history and launch it in one of the fastest growing cell-phone markets in the world, and you'd expect fireworks. But in India, where carriers Vodafone (VOD) and Bharti Airtel (BRTI.BO) have been offering Apple's (AAPL) iPhone since last August, unsold phones are stacking up at shops around the country. Apple won't break down sales figures by country, but a senior Airtel executive confirms analyst estimates that total official iPhone sales here have yet to touch 15,000 handsets. Vodafone, which has a lower-key advertising campaign, has sold even fewer, the analysts estimate. Even including sales on the black market, where the phone sells for half the $700 sticker price, the total only increases by an additional 15,000, according to an Indian customs official. That's puny, especially since Indian cell-phone providers have added nearly 20 million new customers since the iPhone's launch last year.

What has gone wrong for Apple in India? Nearly two years after the phone officially went on sale in the U.S., Apple's failure to gain a foothold in India's lucrative may hold lessons for its upcoming iPhone push into China. As the global recession hurts growth in the U.S. and other mature markets, Apple could use some success in these still-growing Asian giants. Sales are already slowing worldwide: The company says it has sold 30 million iPhone and iPod Touch units since their launch. On Mar. 5, JPMorgan Chase (JPM) analyst Mark Moskowitz cut his estimates for iPhone sales to 3.41 million for the January-March financial quarter, down from almost 3.85 million. "[Our] primary research contacts suggest that Mac and iPhone volumes had been trending below our prior expectations," Moskowitz wrote in a note to clients.

In India, Apple has run up against some big obstacles. For instance, it has to fight against Nokia (NOK), a longtime favorite among local consumers. The Finnish company dominates the Indian cellular market and is tops in smartphones, too, with about 40% share.

Three iPhones Equal One Car

The iPhone is also priced far beyond the reach of even many middle-class Indian consumers. Even though iSuppli, the El Segundo (Calif.) market research company, estimates iPhones cost less than $175 to build, both Apple and Airtel stuck to the approximately $700 price for the phone in India, vs. $199 with a two-year AT&T (T) contract in the U.S. In India, then, three iPhones equal one Nano, the $2,000 car that Tata Motors (TTM) launched in India just two weeks ago. An Apple spokesperson in London, Bethan Lloyd, said in an e-mail that pricing and tariff issues are decided by local partners, not Apple. Apple declined to make executives available for an interview.

For Airtel and Vodafone, subsidizing the phone has not been an option. The vast majority of Indian users have prepaid accounts, and even with the few regular contracts out there, high-end users generate just about $30 a month in call and data charges. Add to that the fact that the iPhone is easily unlocked and used on rival networks, and the carriers decided the AT&T model in the U.S. just wouldn't work in India.

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