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Apple Learns What Samsung Forgot: How to Sell Phones in China

Over the last year, Apple has doubled its sales in China, rapidly gaining market share as Samsung falls off

There was a time not long ago when both Apple and Samsung seemed at risk of losing the Chinese market to increasingly confident local companies. Apple's earnings report on Tuesday—with sales in China doubling in the past year, and revenue increasing 70 percent in the last quarter—proves that at least one foreign tech giant is rolling in China.

Apple's rise from obscurity doesn’t bode well for Samsung, which appears to be falling from power. Back in August, at the time Apple’s share of the market was also shrinking, Samsung lost its distinction as the country’s best-selling smartphone brand to local powerhouse Xiaomi. But things have been changing rapidly since Apple released its latest iPhones. The large-size iPhone 6 Plus took away a core advantage Samsung had in Asian markets, where customers prefer larger phones. The big screens are doubly good for Apple because they are also more profitable for the company. The average price consumers paid for iPhones increased $50 over the quarter.

The last time that market research firm IDC released data on the Chinese market, Apple was the eighth-largest player in the country. Now, Crawford del Prete, IDC's chief research officer, expects Apple to be in the top three when his firm releases new data in February. While much of Apple’s growth is coming from new smartphone users, del Prete sees Samsung with more to lose than any other company, and he predicts Apple’s recent success will continue as Apple benefits from the Chinese New Year. Beyond that, he notes, Apple is limited mostly by how quickly it can sell its phones.

This is a major shift from the talk only a year or two ago, when Apple’s products were seen as simply too expensive for Chinese consumers. It turns out analysts underestimated the number of Chinese customers interested in phones that are essentially luxury products. “Some of this was a wrong assumption,” says del Prete, “and some of it is that Apple has done a good job of creating demand.”

Apple didn't quite reach some people's expectation that it would say it's now selling more iPhones in China than in the U.S., but the company's clearly on track to get there. It's actually early days for Apple’s Chinese operations. The impact of its deal with China Mobile, the country’s largest wireless carrier, has been felt in Apple's results. The 20th Apple Store is set to open soon, with plans for another 40 stores by 2016. Apple’s online sales in China are also growing at a stunning clip. Apple Chief Executive Tim Cook said revenue from online sales last quarter topped the sum total of the previous five years in online commerce.

In short, Apple is succeeding in China in much the same way it did in the U.S.: make a small number of products and convince affluent customers that they're worth premium prices. Samsung’s strategy has also been consistent: offer many, many devices in the hope that consumers will find what they’re looking for somewhere in the mix. Chinese customers have apparently been choosing iPhones over the high-end Galaxy devices. The fight between the two has defined the smartphone industry for years, but in China it's becoming a bit of a sideshow. The main competition Apple faces right now comes from Xiaomi, a local brand that mirrors it in many ways, from its luxurious image all the way down to its charismatic founder.

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