iPhone 5China? Apple Courts Chinese Market, But Not Everyone Is on Board

Sept. 11, 2013— -- Apple has left the C in iPhone 5C open to interpretation. The C could stand for color, cheap, or in a somewhat new direction, China.

"This is the first time we've been able to launch an iPhone at the start, with the other countries, in China," said Phil Schiller, Apple's VP of Marketing, at yesterday's event.

But why is Apple so interested in China? Why are analysts downgrading Apple from "buy" to "neutral" because it's not competitive enough in China?

It could be that China has nearly half a billion people using smartphones to access the Internet. But of those half a billion, only 12 percent of them use Apple products.

That's not to say that Apple isn't a household name in China. Carl Howe, a vice president of Yankee Group's Consumer Research group, said that just like the United States, Chinese Apple stores have lines out the door whenever a new device goes on sale. "Rumor has it that they make more money in any of the five stores in China than they do in the Fifth Avenue store in New York," he told ABC News.

But many of those customers are among China's elite. "The price of an Apple product is a significant fraction of the average Chinese worker's salary," said Howe. "These devices mostly go to the wealthy." China may be Apple's second largest national market, but there is still a large customer base that Apple hasn't tapped into yet.

"It's still a premium brand," said Rob Enderle, the principal analyst of the Enderle Group. "Apple is on the high end of the smart phone market, and a lot of other phones in China are quite a bit less, closer to $100 or $200."

The 5S is set to retail in China for 5,288 yuan ($858) and the 5C for 4,488 yuan ($728). Looking into the Twitterverse, potential Chinese customers don't seem to care for the price of Apple's new iPhones, especially the 5C.

"iPad Mini prices were $329 when everyone thought it was going to be $249. The iPhone 5C's price is even more shocking," tweeted @oxyung.

"It's like [Apple CEO] Cook slapped me in the face," tweeted @zmt0516.

Chinese news agencies are reporting that the 5C will likely have a hard time in China. A survey conducted by Sina Corp said that less than 3 percent of over 9,000 users say they would buy an iPhone 5C. A worker in Zhongguancun, the Chinese equivalent of Silicon Valley, told Xinhua News Agency that while it's good for Apple to see its Chinese customers as important, "the prices are a little high."

One way that Apple could make themselves more accessible to Chinese customers is by striking a deal with China Mobile, the country's largest cell phone carrier. "They have 750 million subscribers, like seven or eight Verizons combined," said Howe. If Apple wants new customers in China, Howe sees China Mobile as the company's wildcard.

But a wildcard is anything but a sure bet. Enderle still sees the iPhone as a plaything for China's wealthiest citizens. "Given Chinese customers' past behavior, the 5S will outperform the 5C," he said. He sees the extra status in having a 5S compared to a 5C as worth the extra 800 yuan to the Chinese customer. "China is very status oriented, so who wants to pay for a cheaper iPhone?"

Whether Apple will find new customers or just cater to the ones it already has in China, Howe sees the new iPhones doing extraordinarily well. "We're predicting that globally, 12 million phones will be sold from the Sept. 20 launch to the end of the month," he said. "That would make it the largest consumer electronics launch in history."