Don't Cry for Apple in China

Image via CrunchBase

Apple’s launch of the iPad Mini in China today was supposed to cheer an edgy Wall Street that cannot make up its mind which way the company’s stock should go.

But not a chance. After a brief jump at the opening, Apple resumed its descent towards the $530 mark.

What’s worrying Wall Street this time around? Plenty.

Anything from competition from Nokia to concerns over an unfavorable profit-sharing scheme under negotiation with China Mobile, and the affordability of iPads and iPhones, as China’s per capita GDP is about 1-10th of that of America.

Two days ago, for instance, Nokia (NYSE:NOK) announced an agreement with China’s largest carrier China Mobile to launch Lumia 920T for the Chinese market, a smartphone based on Microsoft Windows 8 operating system. Today, there is talk that Apple may have to enter a profit sharing agreement with China Mobile that would cut Apple’s profits in the Chinese market.

While Wall Street’s concerns over these issues are justified, it’s nothing to cry about -- for several reasons:

First, Apple and its founder Steve Jobs enjoy an aura in China that makes demand for its products inelastic; at least for the wealthy 10 percent that has no affordability problem. After all, China is the only country where a consumer sold his own kidney for an iPhone and an iPad.

Second, China’s market saturation is still low. This means that there is plenty of room to grow for many players.

Third, a cut in concessions Apple receives from Chinese mobile carriers may boost demand and Apple’s revenues, as demand becomes increasingly elastic for the lower income segments of the Chinese market.

The bottom line: Don’t cry for Apple in China. There is plenty of room to grow, even as competition tries to catch up.

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Don't Cry for Apple in China