By Lee Chyen Yee and Melanie Lee
HONG KONG/SHANGHAI (Reuters) - Apple Inc's
China is Apple's second-largest market, and its rabid fans have been known to seek out smugglers just to get their hands on the latest gadgets before they officially go on sale in Beijing and Shanghai stores.
But an iPad 3 launch in China last week did not generate the normal buying frenzy, and lacklustre April-to-June sales of the iPhone 4S have some analysts questioning whether Apple products are losing their status as the must-have accessory for China's hip and affluent.
"The (iPhone 4S) model is a little bit too long in the tooth when compared to other phones with better specs," said TZ Wong, a Beijing-based analyst from research firm IDC.
"To put it plainly, consumers are getting a little bit tired of the look of the iPhone 4 and the iPhone 4S."
Apple's sales from greater China, which includes Taiwan and Hong Kong, totalled $5.7 billion for its third quarter ended June, an unexpectedly steep drop of $2.2 billion from the January-March period.
Tim Cook, Apple's chief executive, told analysts that about half of the quarter-to-quarter decline stemmed from "changes in the inventory channel" rather than weak sales of its iPhone 4S, which analysts took to mean that Apple had built up excess inventory in the first three months of the year.
That extra inventory meant resellers did not need to buy as many iPhones in the April-June period. The iPhone 5 is expected to be released later this year, with enhanced Chinese language capabilities, so that likely contributed to resellers' slower orders of the 4S as well.
Cook also pointed out that iPhone 4S sales were very strong in China over the first three months of this year, so there was probably some drop-off in demand after that period.
SIRI LEARNS MANDARIN
Consumers in China, which has the world's largest number of mobile subscribers, were spoilt for choice with a slew of new phones available over the past few months from brands such as Samsung Electronics Co Ltd <005930.KS> and HTC Corp <2498.TW>.
Samsung, which flagged a record quarterly profit of $5.9 billion earlier this month, saw stronger-than-expected demand for its latest Galaxy S III model, while HTC's One X also gained popularity among phone users globally, including the greater China region.
"The S III and One X are outselling the iPhone now because people like their wider screens, better cameras and the apps are pretty good," said a salesperson at an electronics store in Hong Kong that carries phones from Apple, Samsung, HTC and Nokia Ojy
New smartphones made by China's Huawei Technologies Co Ltd, ZTE Corp <0763.HK> <000063.SZ> and Xiaomi were also hot sells, in part because the price was right. They are heavily subsidised by China's three telecom carriers.
Apple is expected to release its next iPhone around October, according to sources, about a year after the launch of the 4S, which was a hot seller in the first three months of 2012 and helped to drive Apple's stellar earnings in that period.
There was one hitch for Chinese consumers, however: Siri, the voice-activated personal assistant programme that was a popular selling point globally for the 4S, does not speak Mandarin or Cantonese, which are widely spoken in mainland China and Hong Kong.
The iPhone 5 version of Siri will have those language skills, according to sales staff in an Apple store in Shanghai's Pudong financial district, which a Reuters reporter visited on Wednesday. That is one more reason for Chinese customers to hold off until the new phone is available.
"Since iPhone 5 will come out soon, operators don't want to buy in any more iPhone 4S as they will add to the inventory," said Ming Chi Kuo, an analyst from KGI Securities. (Reporting by Lee Chyen Yee in HONG KONG, Clare Jim in TAIPEI and Melanie Lee in SHANGHAI; Editing by Muralikumar Anantharaman and Alex Richardson)