Nov. 4 (Bloomberg) -- Apple Inc.’s Chinese partner sold fewer iPhones than analysts anticipated in the product’s debut last week, raising concerns the price is too high to attract customers in the world’s biggest mobile-phone market.

China Unicom (Hong Kong) Ltd. said yesterday it’s sold 5,000 iPhones since the Beijing-based carrier began offering the product on Oct. 30. The phone costs as much as 6,999 yuan ($1,025), compared with $299 in the U.S. Unicom’s version of the iPhone also lacks the Wi-Fi networking features available in other countries.

The sales figures were disappointing compared with results in other markets, said Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. The iPhone 3GS sold 1 million units within three days of its June debut in North America and Europe. That dwarfed the sales in China, a market that Apple Chief Operating Officer Tim Cook sees as a “priority project” for the company’s expansion.

Unicom’s iPhone plan “will be an interesting exercise in how to sell an inferior product at a higher price,” said Duncan Clark, chairman of BDA China, a Beijing-based consulting firm.

Unicom’s price for the most expensive iPhone model is 26 percent higher than in neighboring Hong Kong. Even so, the difference is smaller when taxes in the two markets are taken into account, Unicom President Lu Yimin said. Demand has been “quite good,” he said.

‘Soft’ Sales

The Chinese sales in the first four days were disappointing and “soft,” said Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis. Judging by the original iPhone’s U.S. release in June 2007, the China debut should have generated sales of about 30,000, he said.

Prices will drop over time, helping China’s iPhone shipments reach 1 million to 2 million in Apple’s fiscal year, which ends next September, Munster said. That’s out of a total of 36 million units, he said.

“We believe that eventually China will emerge as a major market for iPhone sales, but it could take a year or two to gain meaningful unit traction as it did in the U.S.,” said Munster, who rates Apple “overweight” and doesn’t own the shares.

Unicom rose 2.6 percent to close at HK$10.04 in Hong Kong, while the city’s benchmark Hang Seng Index added 1.8 percent. Apple fell 56 cents to $188.75 yesterday in Nasdaq Stock Market trading. The stock has more than doubled this year.

500,000 ‘Initial’ Sales

Cupertino, California-based Apple’s “initial sell-in” in China via Unicom was expected to be about 500,000 iPhones, Ben Reitzes, a Barclays Plc analyst, said in a report, without defining the timeframe. Demand will increase to several million handsets over the next few years, he said.

Initial sales data for China underscore the challenge faced by Apple in selling the iPhone in emerging markets, said Aloysius Choong, an analyst at researcher IDC. The U.S. company shipped about 60,000 iPhones through the end of June in India, where the device debuted in the third-quarter of 2008, he said.

China had 719.8 million mobile-phone subscribers at the end of September, after adding 9.3 million that month, according to government data. India, the second-biggest wireless market by users, gained 15 million in the same period for a total of 471.7 million, according to official statistics.

Apple declined to comment on the sales, said spokeswoman Natalie Harrison.

More For Less

The lack of Wi-Fi means that Unicom’s iPhones can only connect to the Internet via mobile-phone connections, rather than local wireless networks.

Chinese consumers may buy 1 million iPhones this year from unofficial distributors -- the so-called gray market -- adding to the more than 1.5 million already sold through this channel, according to BDA estimates. Gray market vendors will typically offer iPhones with Wi-Fi, at prices lower than those sold by Unicom, according to the Beijing-based consulting firm.

Unicom “is selling a ‘castrated’ version of iPhone at a higher-than-market price,” Allan Ng, a BOC International analyst, said in a report last month. Demand has been lackluster, Ng said.

Pricier Plans

Unicom will charge iPhone customers as much as 886 yuan a month if they subscribe to its network, the company said in September. That compares with Unicom’s 41.70 yuan monthly average revenue per user in the first half.

In the U.S., the iPhone 3GS costs $199 for a 16-gigabyte model with a two-year contract from AT&T Inc., the exclusive service provider in the country. Service contracts start at about $70 a month. AT&T’s $299 version has 32 gigabytes of storage.

More iPhones will continue to be sold through gray-market distributors in China than Unicom stores, unless the carrier cuts prices, said Timothy Chan, an analyst at CLSA.

The iPhone also faces competition in China from Research In Motion Ltd.’s BlackBerry and handsets equipped with OPhone software from China Mobile Ltd., the world’s biggest phone company by market value. The OPhone is based on Google Inc.’s Android technology.

‘Clear Advantages’

Ma Jing, a hospital worker in Shanghai, paid $399 for an iPhone two years ago through a friend in the U.S. The Wi-Fi feature made it convenient for Internet browsing, he said. Still, he may buy the newer version offered by Unicom, which has additional features.

“It has got clear advantages,” Ma said. “I still like the shape and the functions.”

Crystal Mao, whose iPhone sheathed in a pink rubber case was bought in Hong Kong, said at an Oct. 30 iPhone marketing event in Beijing that she’s also considering swapping her handset for the Unicom model -- when prices drop.

Another shopper, Chen Juan, waited in line for an hour at the same event to buy an iPhone, only to walk away after it began raining.

“For 6,000 yuan a phone, it’s not worth the wait and catching pneumonia,” Chen said.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

Last Updated: November 4, 2009 06:40 EST