The smartphone wars are about to get hotter in China between Apple, Lenovo, Samsung and other providers.
Following the second visit in a year to China by Apple Chief Executive Officer Tim Cook, Apple has launched a financing plan for its iPhones as well as MacBook laptops in order to win more business.
Cook said in the China trip that he expected that country to replace the U.S. as Apple’s top market.
But Lenovo, which runs its executive headquarters in Morrisville, N.C. but is largely based in China, dominates PC sales there and is increasingly competitive in smartphones as well as tablets.
Apple (Nasdaq: AAPL) launched the installment plans in order to better compete with low-cost devices in what has become world’s largest computer and mobile-phone market.
Payments on purchases costing from 300 yuan ($48) to 30,000 yuan made via the company’s Chinese website can be spread over as long as two years, according to the site. The plan, which requires a China Merchants Bank Co. credit card, has fees ranging from zero to 8.5 percent, Bloomberg news reported Wednesday.
Apple is trying to make its products more affordable in China after being surpassed by local suppliers such as ZTE Corp. and Lenovo in the smartphone market.
The iPhone 5, released in China last month, is priced at 5,288 yuan on Apple’s local site, equal to about six weeks’ pay for the average urban worker.
“There is an enormous mid-range consumer market that they are not tapping into,” said Mark Natkin, managing director of Marbridge Consulting Ltd., a Beijing-based market research firm. “They’re trying to figure out how to make products more accessible to that market segment. This is a good step in that direction.”
Online customers in China will be able to split payments into three, six, 12, 18 or 24 installments, according to Apple’s website. Through Jan. 23, choosing 12 or fewer installments carries no fee. A fee of 6.5 percent of the selling price will be charged for 18 installments, and 8.5 percent for 24 installments.
Carolyn Wu, a Beijing-based Apple spokeswoman, declined to say how or if those fees are divided between the company and the bank.
Apple dropped to sixth in China’s smartphone market in the third quarter, from fourth in the prior three-month period, as local producers lured buyers with smartphones costing less than 1,000 yuan each, according to researcher IDC.
The phone-maker is also opening new stores in China and Chief Executive Officer Tim Cook has visited twice in the past 10 months as the company tries to boost sales. The country will eventually overtake the U.S. to become Apple’s largest market, Cook said last week.
Urban workers in China had average monthly pay of about 3,585 yuan in the first nine months of last year, according to data from the National Bureau of Statistics.
Apple “has likely approached maximum penetration in China’s higher economic stratas, and now needs to be able to appeal to students, workers and rural residents to sustain robust growth,” said David Wolf, China managing director for market consultant Allison+Partners in Beijing.
“Financing is traditionally the best route to make expensive luxury items affordable to those unable to save the cash for them, and if Apple pulls it off it will be a pioneer in consumer credit in China,” Wolf said.
U.S., Brazil Financing
Apple has used financing plans in other markets, including the U.S., Brazil and Singapore, according to its local sites for those countries.
In the U.S., a limited time offer allows new Visa card members with Barclays Bank Delaware to get no-interest financing for as long as 18 months. Users of the company’s online store in Brazil can pay in 12 installments without interest when placing an order with American Express, MasterCard or Visa, according to the local site. In Singapore, the company offers a 12-month interest-free installment plan on purchases of at least S$668 ($545) with a Citibank credit card.
In China, Apple recorded $5.7 billion of sales during the quarter ended September. The company has 11 retail outlets in the country, including Hong Kong.
The phone-maker distributes iPhones in China through China Unicom (Hong Kong) Ltd. and China Telecom Corp., the nation’s second- and third-largest carriers. Both companies offer subsidies on the handset that can reduce the cost to consumers.
Apple has yet to reach agreement to offer the devices through China Mobile Ltd., whose customers make up 64 percent of the nation’s 1.1 billion mobile users.