Apple CEO Tells China Mobile Customers ‘Great Things’ Coming

Jan 17, 2014 12:57 pm ET

(Updates with customers from ninth paragraph.)

Jan. 17 (Bloomberg) -- Apple Inc. Chief Executive Officer Tim Cook promised China Mobile Ltd.’s 763 million subscribers “great things” after customers in Beijing asked him whether the iPhone maker was developing devices with larger displays.

Cook was at China Mobile’s headquarters store as the world’s largest carrier started selling the iPhone, concluding six years of negotiations with Apple. As Cook handed out autographed iPhones with carrier Chairman Xi Guohua, people asked him about bigger screens and the use of flexible displays.

“We never talk about future things,” Cook said. “We have great things we are working on but we want to keep them secret. That way you will be so much happier when you see it.”

Apple is hoping to tap the carrier’s users to climb from fifth place in China’s smartphone market behind Samsung Electronics Co. and three domestic makers. China Mobile is betting the device will help attract high-end users to its new fourth-generation wireless network that began service last month.

China Mobile may sell about 10 million iPhone units this year, according to estimates from Tucker Grinnan, a Hong Kong- based analyst with HSBC Holdings Plc, and James Yan, a Beijing- based analyst with market researcher IDC. Pre-orders for Apple’s iPhone reached about 1 million units, China Mobile said Jan. 15.

Apple Share

Apple’s market share in China market has fallen as consumers opt for smartphones costing as little as $100. The Cupertino, California-based company’s share of the smartphone market was 6 percent in the third quarter, down from 10 percent in the same period in 2011, according to data from market researcher Canalys.

The nation’s two smaller carriers already offer the iPhone. China Unicom (Hong Kong) Ltd., the second-largest carrier, began offering the device in November 2009 and China Telecom Corp. followed in March 2012.

“I’m very excited and very happy that we have this great opportunity for China Mobile’s customers to become Apple’s customers as well,” Xi said. “We work to provide great customer service, but we can always do better. This partnership is part of that effort.”

At China Mobile’s flagship store on Finance Street in Western Beijing, only two customers were waiting when doors opened at 8:30 a.m., and neither said they had immediate plans to buy. During the first 20 minutes after the store opened, about a dozen customers wandered in to look at iPhones displayed on two wooden tables at the back of the store.

Seeing Cook

Gao Peng, a 24-year-old software engineer, was first in line, though not to buy a phone. A friend had already brought him an iPhone 5s from Hong Kong. Rather, he was trying to catch a glimpse of the Apple CEO. Gao left disappointed because Cook hadn’t appeared by the time he had to leave.

“Cook has been a good leader, who has made sure Apple stays a champion since he became CEO,” Gao said as he headed for work.

China Mobile’s share of the nation’s wireless users fell to 62 percent as of October from 72 percent when Unicom introduced the iPhone. China Mobile shares rose 0.3 percent to close at HK$77.85 in Hong Kong trading.

The iPhone maker faces challenges because many Chinese customers prefer to have one large-screen device for checking e- mail, browsing the Web and watching videos. Every other fourth- generation smartphone offered by China Mobile has a display at least a half-inch (1.27 centimeters) larger than Apple’s 4-inch models.

Bigger Screens

Apple may introduce two larger-screen iPhone devices this year, Cleveland Research analyst Benjamin Bollin said in a note dated Jan. 13.

Miao Zhiwen, a 33-year-old banker, bought an iPhone to replace a Moto phone from Google Inc.’s Motorola unit. Miao said he’ll use the iPhone mainly for phone calls because it’s too tiny for work applications.

“The iPhone’s screen is a little small,” Miao said. “If Apple had a phone with a bigger display, I’d have gotten that.”

About 40 percent of all devices using Google Inc.’s Android operating system sold this year through Chinese carriers will have screens measuring at least 5 inches, said Bryan Wang, principal analyst and country manager in China for Forrester Research Inc. That is about double the percentage of Android devices sold globally.

Low Subsidies

When it comes to price, China Mobile is trying to avoid the experience of China Telecom, which reported a 10 percent drop in net income in its first year of offering the device due to higher subsidies. China Mobile sells the iPhone 5s without a contract for 5,288 yuan and offers a free model with a plan at 558 yuan monthly.

That was too costly for Wen Li, a 35-year-old railway worker, who was one of the first six people lined up at the China Mobile outlet in western Beijing.

“If I buy other handset brands offered by China Mobile, I only need to pre-pay some charges, then get the phone for free,” said Wen, who left without buying anything. “That’s not the case for iPhone.”

China Mobile may spend 50 billion yuan on iPhone subsidies this year, Grinnan said.

The carrier is projected to have had a 2 percent drop in net income last year, its first decline in 14 years, according to the average estimate of 23 analysts in a Bloomberg survey. That will widen to a 7 percent drop this year, its first back- to-back annual profit declines as a public company, according to the Bloomberg survey.

“China Mobile is focusing on attracting the premium customers,” said Nicole Peng, a Shanghai-based analyst with Canalys. “They are concerned that heavy subsidy spending on the iPhone will impact their profitability.”

Wang Dongli, a 26-year-old communications executive, said China Mobile may have to offer more subsidies to convince her to upgrade from the iPhone 4.

“I’m just here to look,” Wang said.

--Edmond Lococo, with assistance from Stephen Tan in Beijing and Liza Lin in Shanghai. Editors: Michael Tighe, Frank Longid