iPhone Ranked Seventh in China’s Smartphone Market — Watch Out, ZTE

Apple’s iPhone has been gaining a lot of traction in China recently. As Apple CEO Tim Cook said during the company’s third-quarter earnings call, greater China accounted for two-thirds of Apple’s revenue in the Asia-Pacific region during the period.

“In terms of iPhones in general in mainland China, we were incredibly pleased with our results,” Cook said. “We were up over 100 percent, year over year.”

That’s an impressive achievement. But Apple still has a lot of work to do in China before the iPhone claims the same levels of market penetration it enjoys in the U.S. In China, the iPhone has captured about 7.5 percent of the smartphone market, compared to rival Samsung, which has claimed more than 20 percent, according to IHS iSuppli. Despite its popularity in the country, the iPhone is still ranked seventh in the Chinese smartphone market.

Why? Two reasons. First, Apple doesn’t yet offer a truly low-end smartphone that appeals to price-conscious Chinese consumers. (To be clear, China Telecom is offering the iPhone fully subsidized, but it requires subscribers to sign a contract that ties them to a two-year $62 per month plan.) Second, and more importantly, the iPhone doesn’t yet support Time Division Synchronous Code Division Multiple Access (TD-SCDMA), China’s homegrown wireless standard. And until it does, China Mobile, the world’s largest wireless carrier, can’t offer it to its 688 million or so subscribers.

“Among all the international smartphone brands competing in China, Apple is the only one not offering a product that complies with the domestic TD-SCDMA air standard,” IHS iSuppli’s Kevin Wang said in a statement. “For Apple, this is a huge disadvantage, as TD-SCDMA represents the fastest-growing major air standard for smartphones in China, with shipments of compliant phones expected to rise by a factor of 10 from 2011 to 2016.”

In other words, if Apple wants access to the massive addressable market that China Mobile has to offer, it’s going to have to offer a lower-end iPhone variant designed specifically for TD-SCDMA, something it has been loath to do in the past, and hasn’t given any indication that it’s willing to do in the future. As Cook said during Apple’s last earnings call, the company feels that its business is strongest when it focuses on making the best products it can, not the most inexpensive ones.

“I firmly believe that people in the emerging markets want great products, like they do in developed markets,” Cook said. “And so we’re going to stick to our knitting and make the best products. And we think that if we do that, we’ve got a very, very good business ahead of us. So that’s what we are doing.”