New iPhone: Will Apple take on China?
Apple will unveil its latest iPhones tomorrow and is expected finally to mount an assault on the massive and booming Chinese smartphone market.
The chief executive, Tim Cook, will take to the stage after a week in which the tectonic plates of the industry have been rearranged again by Microsoft's £4.6bn acquisition of Nokia's mobile phone business. That move was effectively forced on Microsoft by the increasing dominance of handsets based on Google's Android software. Apple's plans for the Far East will also be seen as a reaction.
Much of what will be revealed has already been divulged. Despite Cook's pledge to "double down" on the company's famously strict secrecy policies, it has been unable to prevent leaks from its vast supply chain; dozens of component suppliers, logistics providers and assembly contractors help in the creation of a smartphone.
The iPhone 5 will be supplanted by the iPhone 5S. It will look virtually identical but feature upgraded microchips and a better camera. In a departure from the monochrome palette previously imposed by Apple's British design supremo, Sir Jonathan Ive, a gold, or "champagne", version is expected to accompany the usual black and white options.
Such relatively minor enhancements are still enough to excite Apple fanatics, but for Wall Street the real interest in this week's announcements will lie in the iPhone 5C, a cheaper handset aimed at the Chinese market.
In a signal of intent, Apple will hold its first media event in Beijing, nine hours after the global showcase at its headquarters in Cupertino, California. The company has been preparing the ground for a big push in China for some months. In April, it bowed to Chinese government pressure and issued a public apology over its iPhone warranty policies.
In an open letter, Cook said: "We always bear immense respect for China and the Chinese consumers are always our priority among priorities."
Soon after, in July, Cook travelled to meet the head of China Mobile, the world's largest mobile operator, which is yet to offer Apple handsets to its 745m users.
The company has reportedly balked at the subsidies it would have to provide to make its flagship iPhone more affordable.
Since it first introduced the iPhone in 2007, Apple has always concentrated its smartphone business on its single flagship device. It has segmented its market somewhat by offering older versions at lower prices, but on the whole has pursued the wealthiest consumers willing to spend on the latest model.
The iPhone 5C will represent a significant change of strategy. Finished in cheaper materials, including colourful plastic casings, it is designed to appeal to those unwilling to pay for the £530 flagship, or the expensive mobile contracts needed to subsidise it. Such price-conscious buyers almost certainly choose an Android handset instead.
Cook has been under pressure from investors to take the iPhone downmarket to address Apple's falling smartphone market share, particularly internationally. While the iPhone's market share in Europe and the United States grew in July, says Kantar Worldpanel ComTech, in China it fell 4pc compared with 2012.
Despite Apple's massive success at the top end of the market, that is a worrying trend in a country where a single mobile network operator sells as many handsets as the entire American market. Android's share was meanwhile up 9pc, now accounting for more than two-thirds of total sales.
The concern this causes among Apple investors, and a key rationale behind the iPhone 5C, is illustrated by Microsoft's decision to buy Nokia's loss-making handset business.
The Finnish firm was the only major supporter of the Windows Phone software and so its failure would have meant failure for Microsoft in the smartphone market which, given the rapid migration of consumers away from their desktops, it was unwilling to accept.
The problem Nokia found, according to chief executive Stephen Elop, was that it did not have the resources to drive Windows Phone's market share to the level where it could sustain a large community of app developers. Microsoft plans to invest to build that scale.
Developers create the experiences that attract customers to handsets and Apple, having created the first consumer-friendly smartphone, has a large community who profit from iPhone buyers, who also tend to buy and use more apps.
It is a virtuous circle that has driven sales ever higher. But as smartphone penetration and sheer numbers of Android handsets increase, priorities are changing in a way that threatens Apple.
Benedict Evans, an industry analyst at Enders, said: "Developers are starting to move from creating new products on the basis 'iPhone, then maybe Android' to 'iPhone and then Android' or even 'iPhone and Android at the same time'.
"If total Android engagement moves decisively above iOS [Apple's software], the fact that iOS will remain big will be beside the point – it will move from first to first-equal and then perhaps second place on the roadmap.
"This is a major strategic threat for Apple."
In part, he said, the iPhone 5C is needed not only to attack the Android market, but also to defend the iPhone 5S market from this threat. Big-spending smartphone customers want the best apps, first. Without them, Apple would lose a big selling point.
A cheaper iPhone is therefore a potential double fillip for Cook. Particularly if he has done a distribution deal with China Mobile, it can provide a direct boost to sales and transform market share in what he has already predicted will become the company's most important territory, silencing grumbling from shareholders spoiled by the incredible growth enjoyed under Steve Jobs.
The boost to the global iPhone user base could secure developers' loyalty.
Beyond that, Apple still has some secrets. Last week, it was reported to be tinkering with a range of bigger screen sizes, another departure from iPhone convention and a nod to the array of options offered by its biggest rival, Samsung.
The Korean firm has been mocked in the technology media for its vast product range, but bigger screens that create phone-tablet hybrids have proved a big hit in Asia.