NY TImes: Apple’s iPhone swept up in a frenzy of global smuggling

“Factories here churn out iPhones that are exported to the United States and Europe. Then thousands of them are smuggled right back into China,” David Barboza reports for The New York Times.

“The strange journey of Apple’s popular iPhone, to nearly every corner of the world, shows what happens when the world’s hottest consumer product defies a company’s attempt to slowly introduce it in new markets,” Barboza reports. “The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing… An iPhone purchased in Shanghai or Beijing typically costs about $555. To unlock the phone and add Chinese language software costs an additional $25.”

Barboza reports, “These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are actually registered on the networks of its wireless partners in the United States and Europe?”

MacDailyNews Take: It’s no mystery unless you’re an idiot and/or trying to manipulate AAPL.

Barboza continues, “For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.”

MacDailyNews Take: On paper, maybe. In reality, Apple makes a profit on each iPhone sold. Those with at least half a brain understand that this iPhone unlocking craze is clear evidence of massive future iPhone successes as it is introduced into each country. The bleeding edge, first adopter, high-price-paying iPhone unlockers will be dwarfed by the average Joe and Jane who do not want to hack their US$400+ investment. This tremendous iPhone grey market also strengthens Steve Jobs’ already formidable negotiating position with the likes of China Mobile and other carriers vying for iPhone around the world.

Barboza continues, “Negotiations between Apple and China Mobile, the world’s biggest mobile-phone service operator with more than 350 million subscribers, broke down last month, stalling the official release of the iPhone in China.”

MacDailyNews Take: Don’t believe everything you read in The New York Times. Repeating rumors that have been clearly refuted is just poor journalism. Apple CEO Steve Jobs told CNBC on January 15, 2008, that rumors of on-again, off-again negotiations with China Mobile are simply untrue; just a single China Mobile rep. has flown out to Cupertino only once. There are no ongoing negotiations, just a first meeting, Jobs explained. Jobs wants iPhone in China, but details will come later.

Barboza continues, “Some analysts say abandoning the locked phone system and allowing buyers to sign up with any carrier they choose, in any country, could spur sales. ‘The model is threatened,’ Mr. Wolf, the analyst, said. But ‘if they sold the phone unlocked with no exclusive carrier, demand could be much higher.'”

Full article here.

[Thanks to MacDailyNews Readers “Ken C.” and “Citymark” for the heads up.]

MacDailyNews Take: We highly doubt that someone of Steve Jobs’ business acumen entered into this market without a plan that considered such basic concepts as selling unlocked devices vs. exclusive carriers and the possibility of changing these models in the future.


  1. If Apple were able to implement visual voicemail without a network partner, I bet they would have released it as an unlocked device.

    As it is, I think Steve thinks visual voicemail is a killer app for the iphone and wants to push it.

    Although I think safari for the iphone is the real killer app.

  2. This is a problem ??
    People want the device so bad they are smuggling and hacking the devices….paying big premiums while at the same time giving up support from the carrier and the device manufacturer.

    Apple is basically selling millions of handheld computers at a 30 % margin (Dell would wish for such a thing!) and these idiots see it as a problem ? Getting the carrier revenue share is an additional benefit….cream on top, not the primary goal. Once service is established in these countries and new releases and additional software is available don’t you think Apple will recapture some of these hacked phones ? And don’t forget these phones are running OSX, establishing ITunes, Quicktime, and Safari as new standards. This is stopping the Microsoft effort cold (does anybody remember the train wreck called “Origami” ?)

    In addition to protecting the Ipod/Itunes franchise the iPhone is expanding Mac sales through a strong positive experience halo effect. With all this who the hell cares if some are hacked to run on non-supported networks. Again….they are making money on the sales…not loss leading !!!

  3. ANY newspaper with the masthead TIMES in it is a crap laden yellow dog sheet. Great for Apple that even in remote markets people are willing to buy their products at higher than market prices. The ‘model’ is invented by Apple to supplement earnings post appliance sale in exclusive markets. China will come to the table, too, soon.

  4. I think Visual voicemail is just one part of the equation but a significant one at that. I agree that it’s one of the best but most overlooked features on the iphone.

    But I think getting a chunk of the monthlies as well as the novel (and much better) iTunes/activaton system are the main reasons why they chose an exclusive carrier versus keeping the iphone open.

    My favorite app of all is the useless ‘burp’ from the i-app-a-day series for jailbroken iphones. silly, but fun

  5. Wow, the lack of basic business sense in this article is shocking.
    Let’s see, Apple could have no unlocked phones being sold AND not being registered, and so make NO money outside of the “target” markets, OR Apple can make money off phones sold to the grey market, and thereby also creating a ready-to-sign potential market for whomever negotiates their way in as Apple’s iPhone carrier.
    David Barboza (11 years old?) thinks:
    “For Apple, the booming overseas market for iPhones is … a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.” (For “some analysts”, read, “Steve Ballmer” )
    Barboza’s logic makes as much sense as saying that Toyota should sell no cars if customers don’t also purchase an extended warranty add-on.
    This article seems to be a blatant attempt at Apple share price knock-down, and an attempt to artificially weaken Apple’s negotiating position with potential carriers. It’s like watching organised crime print newspaper articles.

  6. Anyone claiming to be named “marcos” is a wannabee snob named Mark by his mother, his father, and any scam artist who ever met him. It isn’t like he has any information to back up his comments.
    Jobs thought he had a pretty good plan. It looked great on paper. It worked great initially. Then it got hacked. So the next update broke the more obvious hacks. Then it got hacked again. And patched. And hacked again. The flaw in Jobs’ plan was that the product was just too desirable! With its multiple weaknesses – just starting with “no 3G” – it is still THE Hot Item. Analysts familiar with the M$ reporting style saw the discrepancy and said “AhHA! Flooding the channel!”, not realizing that Apple doesn’t work that way.
    And now the AAPL begins to rise, again, beyond reasonable levels. Go AAPL!

  7. “costing the company as much as $1 billion over the next three years, according to some analysts.””

    Define costing. yeah Apple isn’t getting the kickback from ATT on these phones but how can anyone say it’s costing them when the phones are still being paid for.

    All this will do is help cement the iPhone as a leader in those markets when they are officially introduced. Gotta think into the future. It’s not going to be tied to ATT forever and when it’s not, it will really explode.

  8. You’re flying China Air. There’s a little turbulence. Suddenly, you hear the muffled sounds of marimbas and harps coming from the gut of the mule sitting next to you. He massages his lumps and then you hear click, click, click, click, click. You get a text message. It’s his liver.

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