Apple 2.0

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Report: 'Crippled' iPhone coming to China in September

July 19, 2009: 10:55 AM ET

iphone-china-unicom-112China Unicom and Apple (AAPL) have reportedly signed an agreement to launch a specially-built version of the iPhone in China, perhaps as early as September.

The report, published Friday by China Business Network, credits Hon Hai -- the world's largest manufacturer of electronics components and Apple's long-time partner -- with helping broker the deal.

Under its terms, Hon Hai -- using its tradename Foxconn -- will build a special version of the iPhone for the Chinese market with Wi-Fi disabled, allowing Apple to get around Beijing's restrictions on handsets with high-speed Internet capability.

"I believe we are at the beginning stages of a mobile revolution," says iPhonAsia editor Dan Butterfield, who explored the implications of the deal Friday in a long Q&A with China's Mobinode.tv (see below).

There were several independent reports last week that Hon Hai is already manufacturing the crippled iPhones -- code named "model 90" -- and that the China Telecommunication Technology Labs have begun mandatory testing.

Such tests are required by the Ministry of Industry and Information Technology and usually take at least a month, which is why the phone is not expected to reach Chinese consumers much before September.

In his Mobinode Q&A, Butterfield draws a picture the size and nature of the potential market:

"There are over 700 million wireless consumers in China. The majority are youthful, status conscious, and they want to own cool smartphones loaded with the latest apps/games and mobile technologies that allow them to interact with one another.

"While incomes are lower in China compared to western markets, China still has tremendous consuming power. There are an estimated 340,000 millionaires in China and there is also a growing middle-class. An estimated 290 million Chinese households can be classified as middle-class with monthly incomes ranging from 5,000 CNY to 15,000 CNY ($732 to $2,196 USD). Chinese tend to save a relatively high share of their monthly take home pay. Rainy day savings can sometimes be spent on more expensive items, particularly if the product has status and is used every day … think iPhone.

"All of this adds up to a tremendous potential market for Apple's iPhone. Using conservative estimates, I believe Apple can capture a full 2% share of the wireless market in China within the first 12 months of an official iPhone launch. That's 14 million iPhones and perhaps another 2 million or so coming via grey-market iPhone sales."

For the rest of Butterfield's Mobinode interview, see here.

Photoshop credit: iPhonAsia.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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