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Calibrating launch performance for the iPhone in China

When the iPhone 5 launched Apple promised availability in 100 countries before the end of year. This was a very aggressive plan given the gradual release of previous products. Last year the iPhone 4S only arrived in China (along with 21 additional countries) on January 13th. This year it was almost a month earlier.

Apple also announced for the first time this year first weekend sales for China: 2 million. This is, as far as I know, the first weekend sales data for a single market outside of the US. The time span was three days and therefore the daily sales rate was 2/3 million per day.

The following chart compares the launch performance for the launches which Apple reported:

Screen Shot 2012-12-17 at 12-17-2.44.04 PM

If we normalize by population, the launch performance shows about 1.5 iPhones sold per 1000 inhabitants.

Screen Shot 2012-12-17 at 12-17-2.47.07 PM

It’s a lot less than what we saw with the iPhone in the US and the first tranche of launch countries. But it’s not far from the 2.6 achieved by the iPhone 4. The pricing and 3G penetration in China are far less favorable making this even more impressive.

According to ISI’s Brian Marshall, the iPhone achieved 1.5% penetration of the 3G subscriber base or 15 iPhones per 1000 3G subscribers. If we assumed the same basis (3G subs) that would make the iPhone 5 twice as popular on launch in China than in the US.

  • Stefan Constantinescu

    1.5 per 1,000 is great when you consider that > 70% of the people in China live on < $5 per day: http://povertydata.worldbank.org/poverty/country/CHN

    • http://twitter.com/keuril Keuril Smythe

      Thanks for linking that site. Very good perspective.

    • ChKen

      Of course that also means that about 400M Chinese live on more than $5 a day.

      One should also note that the World Bank national poverty line is $1.25 a day, and that the $5 you chose is 4x greater than that.

      • http://davidhdennis.com/ David H Dennis

        Sounds like the number of Chinese who can afford an iPhone (taking much more than $5 a day to do so) should be very close to the total US adult population, so Apple should be able to sell roughly the same number of phones as it does in the US.

        D

      • Guest

        I usually figure the number of postpaid 3G subscriptions as a good proxy for the demographic easily able to afford an iPhone and that’s somewhere in the neighborhood of 150M, with some estimates I’ve seen as high as 200M.

      • http://davidhdennis.com/ David H Dennis

        That sounds like a good way of figuring it to me.

        D

    • http://twitter.com/john_lam John Lam

      Nothing beats actually visiting a major metropolitan area in China to see how many smartphones are actually being used there.

      • http://twitter.com/handleym99 Maynard Handley

        That is not being denied. The issue is not that there are a number of rich and middle-class people in Chinese cities; it is that this population does not equal to 1.3 billion. Normalizing by population in China is different from normalizing by population in the US, and the figures aren’t usefully compared.

        (What would be more informative is to know something about the number of high-end Android phones sold in China, but of course good luck learning those numbers.)

    • Relentlessfocus

      China is a country of exceedingly high disparity of income. For the country as a whole per capita income is around $4k but in the major cities its between $12-14k. 3G is relatively new in China and the addressable market for Apple’s two approved carriers is about 130m people, most of them in cities or suburban areas. So the spending power for Apple’s addressable market in China is more first world than developing world.

      • http://www.asymco.com Horace Dediu

        I read a recent headline which suggested 40% of all luxury product sales will take place in China in a few years.

      • Relentlessfocus

        I came across this http://micgadget.com/31940/chengdus-apple-store-is-now-the-major-hub-for-apple-in-china-video/ about an Apple store in Chengdu, a provincial city of 14 million people. It gives an interesting perspective on Apple’s China development and even ties Apple plans for a China Apple store to Bo Xilai, the disgraced leader of Sichuan province whose wife was recently convicted of killing a British businessman confidant.

      • ChKen

        While Chengdu sounds like a 2nd-tier city, it is actually the largest city in the most populous province in China. It is one of the key cities after Beijing, Shanghai and Guangzhou. 14M doesn’t sound like much, but that has to be for the metro area, as every other metric I’ve seen has Chengdu as comparable in population size to Shanghai. I’m a little disappointed it has taken Apple this long to get to cities like Chengdu.

      • Relentlessfocus

        14 million people in a city sounds seriously big to me and I grew up in NYCity and now live in London. The scale of China is difficult for me to comprehend. I’m surprised like you are that Apple has been so slow to move into Chengdu but at least according to that article Bo Xilai had a role in the situation.

        Do you live in China? I’m curious how any anti foreigner sentiment relates to the desire for western luxury goods.

      • ChKen

        I was born there, went to school there, worked there, and had a home there until 2 years ago, when I sold my home in Shanghai. I now live in the US.

        I can’t speak for others, but anti-foreigner sentiment is usually drummed up by the Chinese gov’t in order to suit their policy needs. If they want to pressure Japan, they try to whip up the mob to do it. When the gov’t need is over, the anti-foreigner sentiment tends to go with it. How that affects luxury good purchases is hard to say. The mob isn’t usually composed of the well-off demographic. Those are also generally better educated and a little more cynical about the gov’ts actions.

        If your query is in relation to Apple, I see Apple in a bit of a unique position in China. The gov’t is not shy in picking out foreign companies for criticism when it suits their purpose.

        For example, Chinese groceries were being caught false-dating food expirations, which caused a bit of an uproar. To quell the problem, the gov’t conveniently cited Carrefour for doing the same. Thus the gov’t showed that this wasn’t a Chinese-only problem, but that the largest foreign companies also engaged in this practice. Of course, some shoppers protested Carrefour and others vowed to boycott, etc, but it all died down.

        Now, would Apple ever be in this situation? A scapegoat for the gov’t? It’s always possible, but in many ways the Chinese gov’t has its hands tied as Apple thru its supply chain probably employs close to 1M people in China. Hurting Apple, also hurts China, and might not help Chinese tech companies as much as it might help others like Samsung or Nokia, so the risk seems low.

        And, think about Apple’s supply chain, it has come under alot of arguable criticism in the last few years over labor conditions, suicides and safety issues. All of those issues could have easily been an opportunity to slap Apple and its supply chain, but the gov’t has been very quiet. So, my interpretation is that Apple is probably in as safe a position as a foreign entity could be in China given how China’s interests and Apple’s interests seem to be aligned. Hope that answers your query.

      • Relentlessfocus

        Yes it did, thanks!

      • ChKen

        And I read in the last week that China will pass the US as the #1 luxury market this coming year.

  • Lesiu

    But I thought line counting analysis was far and away a better methodology for determining the true success of the iPhone 5 launch in China. I mean, that was done by professionals who are paid substantial sums of money for their considerable expertise. And no slight intended Horace, but you’re a blogger. ;)

    • http://www.asymco.com Horace Dediu

      Counting line length is very poor as a measure but in most cases we don’t have the company reporting performance. Consider how to measure the launch performance of a new Galaxy, HTC or Nokia phone.

      • Joe_Winfield_IL

        Or Amazon tablet. Does “best-selling ever “count as a solid number?

      • Lesiu

        I this case these “analysts” should have been more diligent. Where a company is less forthcoming then I understand a less rigorous methodology but n is case that is not a credible excuse for this kind of careless assessment. At the very least they could have released the analysis with the caveat that they were not counting subsidized sales. And since they didn’t I would conclude that they were at the very least and most charitably, lazy.

    • wmjcollins

      no slight intended, but your a blogger?

      • Lesiu

        That was a tongue in-cheek comment. My point being that the so called professionals are less professional than those without the titles and commensurate financial rewards.

    • Thanks Horace, You’re The Best

      You’re kidding right?

      Horace is miles ahead of any of these clueless analysts. I read an enormous amount of a wide variety of stuff regarding Apple, and Horace hands down the most insightful thinker/poster on Apple and the industry I’ve seen.

      Thanks, Horace

    • http://www.facebook.com/bob.arker.731 Bob Arker

      I sense your sarcasm, but to be honest, this kind of counting is not too useful either. Obviously, you have to factor in that most people can’t afford to buy iPhones in China. The absolute number of people who buy iPhones may be very large, but that number is definitely going to be small as a percentage of China as a whole. We’re left with a number that we don’t know what to make of really.

      It would be more useful if we knew 4S weekend sales and compared that to the 2M sold.

      • cello

        the sales were normalized with respect to the installed 3g subscriber base, not with respect to the whole population of the nation.

      • http://www.facebook.com/bob.arker.731 Bob Arker

        OK, so it says when you normalize to the 3g subscriber base and then compare it to the US, it’s twice as popular in China. Does anybody understand how misleading this is, considering the supply constraints when the iPhone 5 was launched in the US? The bottom line is that we cannot conclude anything from this.

  • ShanghaiPanda

    Traditionally, China also means greater
    China that covers HK and Taiwan. However, this year HK was selected as one of
    the first-tier regions for launch. Thus, the 3M weekend figure should only
    counts China’s and Taiwan’s. Nonetheless, the number is phenomenal.

    Not many stock analysts realize the real
    channel check is not through component supply chains in Taiwan or DigiTimes’s
    reports.

    They could have done a better job by
    visiting the China’s great scalper wholesale markets like Shaghai rail station
    malls, Shenzhen Futian malls, and Beijing Sanlitan. They can have a quick idea
    the most updated daily prices from all well-controlled import quantities from
    different countries.

    The reason I said 3M is phenomenal is
    Apple still did a fantastic job to nail 3M after all channels here have flooded
    this market with millions by scalpers.

    • Lesiu

      It’s amazing how laziness (at best) or purposefully misleading (at worst) is so richly rewarded. Yes, I understand that many of these analysts cover more than a single company but at this point this kind of rationalization rings so very hollow to me. Does it really take that much more effort?

      • http://sharonsharalike.com/ Sharon Sharalike

        As far as I can tell, never before has a company been so broadly and knowledgeably scrutinized. Analysts are accustomed to having better information than the interested public, and since as a group their information tended to be similar, they could crank out their estimates secure in knowing that their brethren would be doing similar work. But there are so many sharp eyes now focused on the topic that those “routine” pronouncements are more readily exposed, and those “if A then B” formulas no longer cut it.

      • Jeff G

        Tim Cook has said for a year or more, “We are doubling down on secrecy.”

        Horace phrased it well when he said, “Apple is difficult to predict.”

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  • http://twitter.com/singhkvarun Varun

    Tim Cook is really a star to execute such high scale roll out in such timely manner. Competition will find it very hard to match his capabilities. With Steve jobs passion for quality already embedded into apple’s DNA and Jon Ivy their to take it forward, apple seems like unstoppable.

    Execution is perfect as ever and innovation is alive as ever – just patientlyapple – last tueday 37 patents granted. What argument will aaple bears have now?

    • http://www.isophist.com/ Emilio Orione

      But, you know, apple is doomed, and it has been in every holiday’s quarter for many years now.
      Even if they change continuously, statistically they have no chance.

      • Jeff G

        Emilio, Thanks for the laugh! You echo some of the same sarcasm I have used, “$120 Billion in cash, the highest customer satisfaction ratings of any smart phone, single digit market share in phones and computers worldwide, highest retention rate of any smart phones, 80% of sales from products new to the shelves in the last 70 days, dominant share of MP3 and tablet markets, amazingly sticky ecosystem, itunes, app store, and products that have broad and deep appeal to hundreds of millions of consumers ages 2 – 99; Clearly they are DOOMED!”

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  • JimmTommJo

    Man those poor lil 8 cent an hour Chinese kids at Foxconn must be working 23 hours aday!

    http://www.Anon-ot.tk

  • http://twitter.com/RickParris Rick Parris

    My greatest fear for Apple is that they’ll be the world’s leading manufacturer of devices based on parts supply pipeline and distribution chains and all of the logistics… and then they’ll begin to neglect to make great, innovative, amazing products.

    Tim Cook has the business side of Apple running like a well oiled machine, and that’s cool. But I’ve been buying apple products since 1985 because they make miraculous products that make me feel like I’m living in a science fiction novel.

    If they can’t do that the mechanics of the business model won’t matter. At least not to me.

    • http://www.isophist.com/ Emilio Orione

      Innovation by apple has come in three forms at least.

      1) new and disruptive products like mac, ipod, iphone, iPad. The rate of innovation in this field has been improving since the period between one product and the next one has shortened. Between the iphone and the iPad, the shortest time, span three years. Since only two as passed from the ipad, all the moans about the absence of the next big thing by apple so far are short sighted. Furthermore shortening the time between one disruption and the other is not the point nor it should be the point, being able to disrupt and create new markets from time to time is more than enough is astonishing and no one has been able to do it repeatedly like apple does. A lot of things are boiling, the time to complain has not come yet.

      2) continuous improvement of existing products. This is not an easy task but it is of fundamental importance for a disruption to happen and for a product to succeed, at least at apple product scale. When the product is good enough is time to introduce something else but finding is limits is a must for an innovative company. In this field apple is still astonishing. The current products where not even in the market 60 days ago. A completely new phone to replace a best selling model, unheard of. There is no reason to complain at all, the ipad 4 and the iphone 5 are really and concretely greatly improved models. Innovation at is best.

      3) distribution, construction, marketing and the like innovation. Innovation not in the products but in the construction and distribution of products. Innovation in this field alone has been able to make the fortune of a lot of companies, see compaq or dell. Here apple is not only innovating but accelerating thanks to cook strength in the field. Again no complain here.

      It is not that apple is getting everything perfect, far from it and thing are getting tough in every field.
      1) new disruptive products aren’t easy to find and the attention to apple’s moves is enormous, the time to exploit them will be shorter
      2) the risk of over serving is coming closer
      3) competitors like samsung are strong in this field and are innovating the quantity of money needed to support a product creating a new phase that no one knows how will change the market
      but all in all your fear has not reasons to be, it has been created by rumors, by marketing money not by real treats for the foreseeable future.
      Wait for television and siri next big thing.

  • ShanghaiPanda

    Correction: 2M for China’s weekend sale, not 3 M.
    Greater China sales includes Taiwan this time. Taiwan’s preorder figure is 600 K with 3 major carriers on the island. That should net mainland’s figure to 1.6M this weekend.
    2 carriers in China offered preorder with contract-only, they are China Unicom and China Telecom.

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  • Neeraj Chandra

    Horace- I think the best way to do this would be to normalize by population with a GDP / Capita above $30,000 (roughly same as the launch countries). On this basis I’d bet the china launch was very impressive.

    • ChKen

      Marshall is using the best proxy, as there are less than 150M actual 3G postpaid subscriptions on the 3 major carriers in China. That is the primary demographic that Apple is selling to.

      • Relentlessfocus

        From my research China Unicom and China Telecom (both selling iPhone 5s) have 130m combined 3G subscribers and China Mobile (no iPhone yet) another 75m

  • David Ryder

    Is it fair to assume that most of the 2M were from Apple to resellers/carriers? If so, then we don’t actually know the sell-through vs. inventory build.

    • Henry

      This seems like an important question. Anyone have thoughts about this?

      • neutrino23

        The story is that sales in China were through online advance registration. This was done to avoid the riots and lines that caused problems with last year’s 4S iPhone introduction. This would indicate that most of the sales were directly to end-users.

      • Henry

        Don’t we know only that 300k (CU) and 200k (CT) are pre-ordered through the telecoms? We don’t know anything about sales via online advanced registration at Apple stores, do we? So conceivable up to 1500k are simply stock for other resellers. Or am I missing something?

      • http://www.asymco.com Horace Dediu

        Apple only reports shipments as a matter of policy. However on a launch weekend it’s very, very unlikely that there were many units unsold to end users.

    • stinkinbadges

      Normally in the states Apple doesn’t count a phone “sold” until it is in the hands os the end user.

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  • Walt French

    Most of the regular readers here, and by recollection, the commenters above, realize that Apple does not yet have a deal with China’s largest telecomm. This means that many Chinese customers tolerate a 2G-class connection in an era where (as I have seen) LTE makes a HUGE difference in the usability and responsiveness — ergo, the “good-enoughness” — of a phone.

    I’ll just quote from the RBC analyst in the linked article…

    Notably, this growth excludes China Mobile which is the largest mobile operator in the world with ~700M subscribers and 75.6M 3G customers. We previously estimated that the addition of China Mobile could add ~$3 to Apple’s EPS or ~$45 to its stock price with sales of 10-16M units in its first 12 months of availability.

    • claimchowder

      Why is everyone in this discussion talking about 3G customers? Isn’t the iPhone 4G/LTE capable? Wouldn’t it be much more reasonable to use at least a combination of 3G and LTE subscriber base?

      Or am I missing something here…?

      • http://twitter.com/handleym99 Maynard Handley

        You are missing something. China is not a slightly poorer version of America; China is MUCH poorer. Poorer enough that 3G (ie WCDMA) is something new there, and LTE is only available in a few test markets.

        Recall that 3G licenses were only handed out in 2009. The current story is that “4G” licenses (which I assume means LTE licenses — the journalists reporting on this are technical idiots) which were scheduled to be handed out in two years are now going to be handed out in one year.

        The point is that an iPhone is not very desirable without at least a 3G connection, so the number of 3G customers acts as a measure of the pool of at least potential customers, whereas the 1.3 billion population figure is meaningless. (Even this 3G customers figure is a far from ideal proxy. Apart from the obvious issue of how wealthy they are, we don’t know the split between old-style Rel99 WCDMA and the much faster HSPA/HSPA+ customers. We don’t know how common public WiFi is. We don’t know whether the 3G base stations are high-end, multi-sectored, with multiple antennas, and so capable of servicing a reasonable number of users, or consist of a single, non-directional antenna. etc etc etc.)

      • Huskerrx

        I beg to differ on your comment “an iPhone is not desirable without a 3G connection” as I love using my iPhone on a wifi network. If I could only afford one device it would be an iPhone over an iPad or computer.

      • http://twitter.com/handleym99 Maynard Handley

        To quote myself: “We don’t know how common public WiFi is.”

        We likewise don’t know how common is a home WiFi base station + internet connection. I suspect the population with access to 3G is substantially the same as the population with access to WiFi, so your point is moot.

      • Huskerrx

        I know plenty of places in the US that have limited cellular connectivity but have much better access to a wifi connection. So you have been “mooted” on top of your moot.

  • Martin

    60 million smartphone sales in China in Q3. That’s ⅔ million per day. Apple captured, essentially, 100% of the smartphone market in China for one weekend. Not sure how that can be viewed as a bad thing.

  • http://twitter.com/WalterMilliken Walter Milliken

    Horace, have you looked at whether there’s any predictive value for launch numbers versus first-release-quarter numbers versus first-year average sales?

    I’m guessing first day sales is probably too influenced by the unique production ramps (at least for the US data, which is all we’ve got enough history for), but it would be interesting if there were a decent correlation.

  • Bruno

    Horace,

    The iPhone 5 is available at launch in far more places than the 4S was. As you mention above, it didn’t launch in China until the March quarter.

    Given this, shouldn’t December quarter revenue and profit be massively higher than it was last year? What are you modeling for units and revenues for the quarter? What are analysts modeling? And how do these numbers compare year over year?

    Last year’s CQ4 was a blockbuster so at first it would seem very tough to meaningfully top. But given the China boost, it should be easy, right?

    • http://www.asymco.com Horace Dediu

      The channel is far broader this year but the supply seems to be thinner. The other thing to keep in mind is that there were 14 weeks in last year’s quarter and 13 in this year. I’m still thinking about how to model the quarter in iPhones.

      • Bruno

        With all the capex spending you’ve been documenting, why would supply be thinner? Wasn’t ample supply the whole point of spending billions on capex?

        The stock will go up with people _see_ earnings growing at a good clip. We didn’t see that in the last 2 quarters and they have guided for a big slowdown in December. So I think this is the main reason (along with taxes) for the huge drop. Shouldn’t the broader December channel and all that capex spending on capacity translate to a huge quarter?

      • http://www.asymco.com Horace Dediu

        The spending on capex in Q3 was huge. In the past that has indicated more production capacity. Whether that holds this quarter or next or for the whole of next year or for a new category yet to be launched cannot be known. Production can be enabled by more capex but it can be disabled by other unknowns such as low yields, a downstream problem, slow learning curve. Given only history and the data we have from spending I’d be very optimistic. However we saw slow availability ramps.

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  • http://twitter.com/mark_a_howard Mark Howard

    The incredible launch availability curve for the iPhone5 is not being given the respect it deserves. I am beginning to think this is directly related to the 8-9 billion of dark matter capex spending – they ‘simply’ tripled or quadrupled the manufacturing lines. Filling all the demand worldwide quickly allows them the new six month cycle time. Everyone who wants the new shiny gets it, giving Apple more $$$, with half the quarterly revenue variability.