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iPhones Produced in China Smuggled Right Back in 159

Posted by samzenpus
from the the-iphone-cycle dept.
Ponca City, We Love You writes "Factories in China produce iPhones that are exported to the United States and Europe and then smuggled right back in helping explain why Apple says it sold about 3.7 million iPhones last year while only 2.3 million are actually registered in the United States and Europe. For Apple, the booming overseas market for iPhones is a sign of its marketing prowess but also a blow to Apple's business model, costing the company as much as $1 billion over the next three years, according to some analysts. Since negotiations between Apple and China Mobile, the world's biggest mobile-phone service operator with more than 350 million subscribers, broke down last month, the official release of the iPhone in China has been stalled producing a thriving gray market. Copycat models are another possible threat to Apple in China. Not long after the iPhone was released, research and development teams in China were taking it apart, trying to copy or steal the design and software for use in iPhone knockoffs, or iClones and some people who have used the clones say they are sophisticated and have many functions that mimic the iPhone. "A lot of people here want to get an iPhone," says Shanghai lawyer Conlyn Chan."
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iPhones Produced in China Smuggled Right Back in

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  • There was a story a few weeks ago noting the discrepancy between Apple's sales numbers and the number of subscribers on AT&T and other services using iPhones.

    Looks like that million+ phone "gap" is thanks to China.
    • Re:Remember (Score:5, Insightful)

      by mrxak (727974) on Tuesday February 19, 2008 @10:43AM (#22474638)
      Can't say I'm all that surprised about the phones being used in China or the copycats. I guess with one of the world's largest markets, there's going to be a healthy "grey" market too.
      • Re:Remember (Score:4, Informative)

        by nbert (785663) on Tuesday February 19, 2008 @10:51AM (#22474752) Homepage Journal
        Having been in Shanghai last autumn I'm wondering why people are surprised right now. I've seen more iPhones on the street there than in Germany. The electronics markets are full of them.
        • Re: (Score:3, Insightful)

          by djdavetrouble (442175)
          I bought my wife an iphone for Valentines day. While I was checking out, 2 Chinese guys were in there trying to buy 10 each and not give ID's.
          It was fairly hilarious as this was the new york store, and the particular clerk that was helping them was a first
          rate asshole that was seconds away from saying "no phone for you!" to them. They finally ended up buying 5 each
          after a long dressing down by the clerk.

          I tried to activate the phone with my dubious credit and AT&T wanted a $500 deposit plus $136 just t
      • Re:Remember (Score:5, Insightful)

        by Glock27 (446276) on Tuesday February 19, 2008 @10:52AM (#22474764)
        Can't say I'm all that surprised about the phones being used in China or the copycats. I guess with one of the world's largest markets, there's going to be a healthy "grey" market too.

        Sure, and with China's well documented tendencies towards theft of intellectual property, no one should be surprised.

        What we should be doing here in the US, though, is everything we can to discourage use of Chinese products. There's no need to give China all our wealth and in the process create a powerful competitor. Problem is, we're already there...now it's time for damage control. The one good thing about a weak dollar policy is it will help.

        Good thing we have a big crop of American scientists and engineers to compete into the future! Oh, wait...

        • Re:Remember (Score:5, Insightful)

          by Anonymous Coward on Tuesday February 19, 2008 @11:06AM (#22474892)
          Sure, and with China's well documented tendencies towards theft of intellectual property, no one should be surprised.

          Going with the Slashdot meme here, it's not theft because they haven't taken it away from you - you *still* have your IP.

          But then I guess that it's only when $BIGFACELESSCORPORATION is complaining about you downloading their products in violation of US copyright law that such semantics come into play.

          When another country is getting competitive against the US they *must* be *stealing* your ideas!
          • by wattrlz (1162603)
            To further the memage: ... First they stole IP from $BIGFACELESSCORPORATION I didn't speak up because I wasn't $BIGFACELESSCORPORATION. yadda - yadda - yadda ... there was no one left to speak up.
          • Re: (Score:3, Informative)

            by zappepcs (820751)
            When a foreign government or other country is not playing fair by the rules of business that your country uses, the one thing that you can leverage against them is trade, or war, perhaps both. In this particular case, the Chinese have an unfair advantage due to the fact that the US is (for some Clintonian reason) entangled with Chinese trade in such a manor that it *SEEMS* impossible to just pull the plug. While I will use few words here, this is a multifaceted problem.

            The Chinese make cheap goods:
            1 - Walma
            • Re:Remember (Score:4, Insightful)

              by Anonymous Coward on Tuesday February 19, 2008 @12:17PM (#22475698)
              The Chinese make cheap goods:
              1) People like to buy cheap goods

              There, fixed that for you.

              Capitalism/The Market is to blame. People want to buy commodity goods (virtually everything these days) as cheaply as possible.
            • by enjahova (812395) on Tuesday February 19, 2008 @12:51PM (#22476176) Homepage

              An economic embargo to force China to play nice in the ways that western governments deem nice will work

              Your whole post is simple minded but this takes the cake. You think a country with a population of over 1 billion people that is joining the ranks of developed nations can be forced by an embargo to change their ways? You do realize just how many American dollars they own right?

              In your ideal view of the world the only things we get from China is the cheap crap we don't need, and if we could just stop being addicted to cheap crap things would go right back to being pleasantville. Keep thinking that while sitting on a chair made out of chinese parts, wearing clothes made by chinese companies, typing on a computer manufactured in china. Do you really want the job of making these things? Wouldn't you much rather get an education and sit around and post on slashdot all day?

              It looks like there will be more and more China bashing coming up, and it makes sense. It is easier to see the world as black and white, us vs. them. It is easy to disregard how complex a 1 billion person social system must be that has underwent revolution after revolution in the last hundred years. It is easy to proclaim that American's are the only ones that can properly carry out capitalism, when the Chinese have only been at it for 20 years.

              and trust me, I don't like Clinton or her ol' boys network, but you don't know anything about business if you think cutting off one of the largest growing markets is a good idea.
          • by Glock27 (446276)
            Going with the Slashdot meme here, it's not theft because they haven't taken it away from you - you *still* have your IP.

            That's fine, and also irrelevant. The salient fact is not that I still have my IP, but that whatever profits I might make with said IP will be (possibly massively) diluted by a competitor who has no right to my idea/design/product.

            The delta between what I would have made and what I did make is what was "stolen".

            If you or other /. folk don't like the term "IP theft", come up with ano

          • Re:Remember (Score:4, Insightful)

            by Ogive17 (691899) on Tuesday February 19, 2008 @12:50PM (#22476152)
            China has, in the past, reverse engineered entire automobilies, built them cheaply, then sold those as OEM. This is a huge problem because we all know most knock-offs don't have the same quality standard as the origional. But at the same time they make true OEM auto makers jump through hoops in order to just get their server parts into the country (I've been dealing with this for the past two years).

            China's trade practices are unfair and their government encourages deceit. It is IP theft.

            And I don't even work for a US based company... so it's not US vs China.. it's China vs the Industrialized world.
        • by Grishnakh (216268)
          Can't say I'm all that surprised about the phones being used in China or the copycats. I guess with one of the world's largest markets, there's going to be a healthy "grey" market too.

          Sure, and with China's well documented tendencies towards theft of intellectual property, no one should be surprised.


          I see no problem with there being a grey market at all. No one is being stolen from, it's just that these products aren't being sold exactly the way Apple likes. Too fucking bad. Remember, grey market != bla
        • Re: (Score:3, Interesting)

          by Simon Brooke (45012)

          The reason the Chinese own the United States has nothing to do 'theft of intellectual property'; it doesn't even have much to do with trade. It [msn.com] has to [state.gov] do with debt [wikipedia.org]. You keep borrowing, and the Chinese, who are thriftier than you are, keep lending. And they've now lent you so much that you have to borrow more even to pay the interest. Face it - the Third World War is already over, and the United States lost.

          China owns you.

          • by PitaBred (632671)
            Money is a PLACEHOLDER for value. It is not an entity unto itself. If it comes to blows, I'm pretty sure the US can stand on it's own. They only "own" the United States as long as the US plays fair. And since China hasn't exactly done so in the past, I'm not sure I see a big reason for the US to do so, either.
        • by kcelery (410487)
          yes, right, sell more sub-prime CDO to them.
  • by explosivejared (1186049) <hagan,jared&gmail,com> on Tuesday February 19, 2008 @10:43AM (#22474622)
    People in China are going to satisfy their demand for iphones one way or another. Not to bother with the ethics of the situation, but much like any other type of piracy, this is just a market at work. We truly live in a global economy now. Regional releases and other such nonsense just don't make sense any more. If you release a product with global demand, make sure you can supply it globally or it will be pirated, smuggled, etc. If Apple cares at all about the Chinese market, then they need to ink a deal fast, because someone will supply iphones in their stead if they don't get something done.
    • Re: (Score:3, Insightful)

      by rilister (316428)
      well, I don't imagine Apple are too concerned about this, apart from .looking. concerned for the benefit of AT&T. I can't imagine that the future Apple want to live in is being trapped in the ghetto of AT&T. I bet that was just the only way into a deeply entrenched market.

      Remember MusicMatch Jukebox? (The music player supplied with the first Wintel version of the iPod) The same deal - a tactical alliance, dumped the moment that they could stand on their own two feet. Portalplayer anyone? Logitech?

      Th
    • by DMoylan (65079)
      i wouldn't have thought it needed to be repressed.

      * in the us the iphone is considered the state of the art.
      * in europe iphones sales haven't been great by all accounts. a few folk i know who were initially interested decided not to go for the iphone as it was feature light. shoot video, 3g etc plus a terrible contract.
      * i always thought asia was way ahead of both asia and europe in terms of mobile capability so i never would have thought it would have made a dent there. (i do see the asian tourists on pu
    • by hjf (703092)
      exactly! where is the "Think Locally, act Globally" premise of the Internet? So, Apple has this new thing everyone in the world wants BUT you can't have because you live in a piss-poor country. No, it's not a matter of wether you can afford it or not, it's just that we don't give a flying shit about you. I can understand that from Apple: limited supply, etc. But the sad thing is that it happens with Google too! For example, in latin america all we have is Google search. Nothing else. Oh yes, in Buenos Aires
    • While maybe Apple and its shareholders might consider it piracy, the phones them selves were purchased fair and square. It looks like Apple does make money on each one sold, activated or not.

      I remember that Apple is supposedly working on a deal for China
  • Don't build in China (Score:4, Informative)

    by Anonymous Coward on Tuesday February 19, 2008 @10:43AM (#22474636)
    If you do not want people to copy your product then do not have them made in China.

    Recently I've found some iPod Nano knockoffs. These devices look good. They copy the Nano right
    down to the nice plastic case that if it in on the shelf. The only difference is that these
    devices do not have the feature where you can move your finger across the dial and they do not
    have Apple's software. They are easy to use and cost less than $50 for a 4GB model. I've not
    bought one yet. I have a 20GB iPod and it still works for me. When it breaks I'm buying a clone!
    • by mrxak (727974) on Tuesday February 19, 2008 @10:46AM (#22474674)
      Doesn't really matter where you build it, people can get something and reverse engineer it no matter what. It's really more of an issue of market forces meeting demand where there is no legal supply.
      • by wattrlz (1162603) on Tuesday February 19, 2008 @11:37AM (#22475246)
        Perhaps, but you don't hear people whining about cheap westrn-European knockoffs, or mid-western-American knockoffs much.
        • by Jeff DeMaagd (2015) on Tuesday February 19, 2008 @01:47PM (#22477096) Homepage Journal
          Perhaps, but you don't hear people whining about cheap westrn-European knockoffs, or mid-western-American knockoffs much.

          Mainly because not much in those regions is cheap, and trademark & copyright laws are enforced against commercial entities that would try to make those knockoffs. China, Taiwan and such may have laws but the enforcement is quite lax.
      • "people can get something and reverse engineer it no matter what."

        obviously you've never encountered the mysterious black resin.

        You try to figure out a device, and this little blob of black plastic gets in your way. when you try to pop it off, it destroys the IC it was protecting.

        the answer to piracy would therefore be to dip all our electronics into molten black resin. reverse engineer that!
      • Re: (Score:3, Interesting)

        by bkr1_2k (237627)
        Doesn't really matter where you build it, people can get something and reverse engineer it no matter what.

        That's true but when you provide the factory and the bill of materials, it makes their job a lot easier. That's the problem companies have; the "knock-offs" are (or were) often being built by the same people building the "real" product. I saw it in Korea (in the late 80s and early 90s) and it happens now in China, Indonesia, and other places. It's a part of doing business and like you said, it happen
      • by fermion (181285)
        this is not so much about reverse engineering. It is about process engineering. To have some build something for you you have to give away many more secrets than they can get by re. Suppliers, forming, etc Building in china is giving away the store, but I guess it is cheap it can't be helped. I think the Chinese price it that way
    • Re: (Score:3, Informative)

      by koblek (642650)
      I used to be a design engineer with a pro-audio company. We looked into having some of our manufacturing done in China, primarily PCB manufacture and stuffing. We had a small batch made and delivered to us, but we were very unhappy with the results. Even with the great cost savings of having the boards made and stuffed for dirt cheap, it was costing us an arm and a leg to test and fix the crap they produced so we decided to stayed with our US board and stuffing houses. About a year later, one of our Japa
    • by MoonBuggy (611105)
      To me, at least, the physical interface and the software are really the only two reasons to pay the premium for Apple. If you want a functional MP3 player then there are hundreds of very cheap Chinese imports that didn't have to bother copying the look of the iPod. If there were copies that replicated the most important features of the Apple products I'd be much more interested, but as it is I'd just consider them another cheap but functional player that happens to be in an Apple-style casing rather than a
  • funny math (Score:5, Insightful)

    by Anonymous Coward on Tuesday February 19, 2008 @10:44AM (#22474640)

    costing the company as much as $1 billion over the next three years
    "Costing"? This sounds like funny math to me (pioneered by record labels and Hollywood). Since Apple doesn't sell the iPhone at a loss, any sale (even without contract) is a net profit. They are not losing money from all the people who are buying it without getting a contract. Sure, they might have expected higher sales... but they have not lost anything.

    Basically this "funny math" is saying: "We get $X from phone sale, plus $Y from the carrier deal. We expect to sell 1M phones, which means (X+Y)*1M $. We noticed that we actually sold 2M phones! Yay! But then we noticed that only half of those phones actually signed up for plans."

    So they now claim that they have lost Y*1M $ because people didn't sign up.... umm... no. You made an additional X*1M $. That is not a loss. That is a profit.

    "Costing" indeed.
    • by alexhmit01 (104757) on Tuesday February 19, 2008 @10:59AM (#22474838)
      If you notice, we haven't heard ANYTHING from Apple. Apple looks like they are preventing this, because why would AT&T give them a cut if everyone else can carry the iPhone with unlocked iPhones. Apple seems to enjoy the extra sales and profits, but doesn't want to jeopardize the AT&T gravy train.

      The funny math comes from business reporters/analysts that have been trained by this given the Record Labels/Movie Studios, as you pointed out. Also, it does matter to business analysts, because they are trying to project Apple profits. If you priced all iPhone sales as the deferred revenue model, you would be overstating future sales/profits. You need to know how many are "lost" to back them out of projections.

      The loss is also probably more an accounting/spreadsheet thing.

      If your estimate is $300 in profit from iPhone over 3 years, your line is probably:

      If you estimate 1m/year

      Year 1: $100m, Year 2: $200m, Year 3: $300m, Year 4: $300m, (and $300m in perpetuity)

      Now, if you need to adjust that in future years, your choices are, recalculate and estimate new sales vs. unlocked sales. Or, put in a line under there: Loss from unregistered phones. The latter is easier, and looks more like an income statement's bad debt expense.

      Bad debt expense is booked as an expense and a loss. However, for a company with virtual sales (software), obviously it's not really an expense. Producing the item cost you zero marginal costs, so if you don't get paid, you're no worse off than if you didn't make the sale. However, accounting treatment requires you to book the sales and then book the estimated losses from bad debts as a percentage, rather than incurring as you go.

      For a small business, you might just not spend the cash until the credit card/check payment clears, but bigger businesses need to worry about GAAP compliance, and it's really important that revenue/costs are booked in the period that they occur, not when the cash clears.
    • The analyst might have said Y*1M in "lost revenue", I think that makes it better. But my english isn't good enough too say.
    • Re: (Score:2, Informative)

      by barocco (1168573)
      For a publicly traded, high-profile company, having a less than expected profit is as bad as (or sometimes even worse than) losing the difference This is not about funny math it's about super-capitalism
    • Re: (Score:3, Insightful)

      by delinear (991444)
      It seems like they've only got themselves to blame for the loss of additional revenue streams by trying to lock everyone in to contracts with certain carriers anyway. The evidence is in the sheer number of phones being unlocked, if they just made it easier to own the phone on any network, they'd lose some control but generate more revenue.
    • sounds like funny math to me

      Who cares? The whole thing sounds like funny journalism to me anyway. Mr. Markoff doesn't tell us about his source. One could think somebody pulled an anti Apple story out of his ass ...
    • Re: (Score:2, Funny)

      by srussia (884021)
      New /. business plan:

      1. Come up with new idea.

      2. Tell someone about it.

      3. ...

      4. LOSS!
  • Isn't that theft? (Score:4, Interesting)

    by MouseR (3264) on Tuesday February 19, 2008 @10:56AM (#22474802) Homepage
    Someone needs to explain how distribution channels can legally divert these phones away.

    Apple is the only producer of these phones (well, through OEM partners), wich presumably moves the phones to some Apple warehouses and they, in turn, are moved off to Apple stores and authorised resellers (AT&T, Orange, T-Mobile and O2 if I'm not mistaking).

    So, where do all the grey market phones come from? And how can Apple account for them if they've never been in their warehouses?

    Mine was bought in an Apple store so I'm not even worried about it but I wonder about those I see in downtown Montreal cell phone outlets (at a premium price). Should those be considered stolen devices?
    • Re:Isn't that theft? (Score:4, Informative)

      by will_die (586523) on Tuesday February 19, 2008 @11:08AM (#22474918) Homepage
      From what I heard in another report people are purchasing the phone from legal sources but not doing the activation. Since activation is a seperate step it is easy to bypass. They then apply the various hacks and use them on thier networks.
      So they are devices legally purchased, so they get counted as sales.
      That is why they are considered grey market, they are a legal product being used in an area where the manufacturer does not provide support or authorize thier sale.
      • A co-worker of mine here in Australia has an iPhone. He uses it with his Australian SIM and a hardware unlocking device. He bought it on eBay. I can't see him going to jail for theft any time soon. He hasn't signed any contracts with US phone companies and is not obligated to them.
    • Re:Isn't that theft? (Score:5, Interesting)

      by LynnwoodRooster (966895) on Tuesday February 19, 2008 @11:54AM (#22475446) Journal
      I've been working with and in China for 10 years now, this is how it works...

      Company A from America contracts with Company C in China to build product I.

      Company A orders 100,000 I's every month.

      Company C builds 120,000 I's every month.

      Company C ships 100,000 I's to company A.

      Company C sells the other 20,000 I's domestically at a higher profit.

      Happens all the time. That's how most IP/knockoffs in China come about. Same product line, same product, they just build a few extra (at their cost, their customers know what the BOM is, and can quickly figure out overcharges) and sell them locally for more profit.

      The key to keeping IP "protected" in China is to partner with a strong Chinese manufacturer and give them financial incentives to police the market for you. It's what I do with my IP; I have two "blessed" factories in China authorized to build with it, and they get to maintain that "blessed" status as long as:

      1. The products they build meet quality standards
      2. The products they build meet typical BOM and profit margin costs
      3. They monitor and police the Chinese market for me to watch for knock-offs

      The carrot? They get a virtual "lock in" of clients. They get to charge a few percent more profit because my IP carries a premium.

      The stick? They would lose the lock in, and either lose their "blessed" status or end up having two, three, or a dozen more factories so blessed and then lose their premium profit.

      The key to China is pretty simple - make it worth their while to do the policing for you. It's all about the RMB, folks...

      • by wvmarle (1070040)
        Ah, the infamous second shift. Production continues after the actual order has been fulfilled, to sell the products under the own brand. Yes a very familiar issue in the China market. I'm not working directly with the factories (located in Hong Kong, I sell raw materials for recycling to China), but close enough to know quite a bit about it.
        The issue here is NOT a second shift. Apple KNOWS those phones are produced, actually released the sales numbers so this is the actual production as ordered by Apple. A
        • Re:Isn't that theft? (Score:4, Interesting)

          by LynnwoodRooster (966895) on Tuesday February 19, 2008 @12:43PM (#22476048) Journal
          Based upon the number of iPhones available for sale in Shanghai, Nanjing, and Beijing I'm pretty sure there's a lot of extra production going on...

          Restricting a component is a good approach, as long as you can guarantee restriction of that component. You know the back-channels of China, though! A cousin of the senior engineer happens to work at that component vendor and over dinner at the New Year's celebration a deal is struck...

          Personally, I've found it better to control on deliveries to the destination market (usually the US and the EU), and incentivise the Chinese factory strong enough that they make the same amount of money AND don't have the headaches of extra production to just play ball from day one.

          BTW, for those others reading this little piece of lint (that is what a small, sub-thread is, right?) the problem is bad in China, but about 5X worse in India, based upon my experiences (consumer electronics products).

      • by Rogerborg (306625)

        Hey, here's a big bag of rubies. If you count them and tell me how many there are, then I'll give you three of them.

        Ahem. If they police and monitor the Chinese market, how reliable is their information?

        • Better for both of us - me and my partner factories in China - than just me by myself...
        • by PitaBred (632671)
          And as soon as you find out they've taken the whole bag, they lose their contract, and get NO more rubies from you. The bulk of their business is still tied to the demand of the manufacturing company, not the second-shift production. It's cutting off your nose to spite your face if you value the second-shift production more than a good first-shift production. The Chinese aren't stupid... far from it. They just have very little respect for you, so you need to give them a reason to do so.
          • by Rogerborg (306625)
            If you have any bags of rubies that you need counting, send them my way. I assure you that I won't take all of them.
      • Re: (Score:3, Interesting)

        by lelitsch (31136)
        I RTFA (so what, take away my geek card). According to the NYT, these phones are not being diverted by the manufacturing plants, but just bought in the US and shipped or carried back. Given that everyone I know who traveled outside the US has been asked to bring at least two iPhones to their destination by friends or acquaintances, I this this can easily account for millions. I could have brought 20 on my last trip to Europe and sold them at the first conference I went to in minutes.

        About 10% of the Germans
      • by segedunum (883035)

        The key to keeping IP "protected" in China is to partner with a strong Chinese manufacturer and give them financial incentives to police the market for you. It's what I do with my IP; I have two "blessed" factories in China authorized to build with it, and they get to maintain that "blessed" status...

        You've got no chance mate. Which do you think is most important to whom? Your need to get low costs and wages in China, or their desire to get their hands on your IP? Western companies like you queuing up to

    • by wvmarle (1070040)
      Probably exactly the same way as it happens with the tobacco.
      Where do all the illegal cigarettes come from? From legal factories who sell to traders who resell in the grey markets. And then it ends up duty-not-paid on the streets.
      Apple KNOWS there are more phones produced than locked in AT&T's network. These phones are simply sold through the official channels to the retailers, who sell them to buyers, who in turn re-sell the phone uncontrolled on the grey market. Very simple.
      The second shift as anot
    • Someone needs to explain how distribution channels can legally divert these phones away.

      The real world, and particularly the world outside of North America, the British Isles, and Western Europe, is not very much concerned about what the laws say, but rather where to make a profit and how much. In many of those other parts of the world the only laws are the law of the gun and the law of money. How can they legally divert the phones away? They just do it and don't worry about the legality of the matter. What is Apple going to do? Move production away from China? Where else would they move it t

    • How can you tell that Apple wants this thriving grey market to happen? Because it sells phones without a contract.

      Think about it. Apple could have sold phones (1) only at AT&T stores, or (2) only with activation. It didn't. Why? Because it wants iPhones out there.

      Everyone with a brain can see that more phones in the market = better for the manufacturer. Why? Simple.

      In the case of Apple, lots of unlocked phones on your network = better business in the future. Imagine that there are 400k unlocked phones o
      • by MouseR (3264)
        Well, think about it. If these extra phones are not sold BY Apple but rather than by the manufacturer's own extra (un-contracted) production run, doesn't that make the manufacturer a thief in the story, keeping profits for itself rather than let Apple sell the products?

        If I had contracted 1m phones to find out that 400k other ones were build without my consent, I'd be majorly pissed at my contractor for having stolen a potential 400k*399$ in revenues.
    • Re: (Score:3, Informative)

      by fliptout (9217)
      Step 1: I bought an iphone in Dallas, TX.
      Step 2: I sent it via US mail to my friend in Shanghai.

      Neato, eh?
      • by MouseR (3264)
        Oh I understand that.

        Mine got purchased by a friend in NC.

        But, 400,000 phones? Damn. That's a lot of friends.
  • by Slotty (562298)
    I think that all the iPhones being smuggled back in are in every mobile phone vendor in HK. I was there a few weeks ago and every mobile vendor I walked past was offering an iPhone unlocked to whatever firmware version their sim tricks work and selling them for about $650AUD

    Grey markets will always exist until all companies hop aboard the concept of the global on-demand rather than the localized rubbish they peddle now.
  • by Speare (84249) on Tuesday February 19, 2008 @11:25AM (#22475106) Homepage Journal

    For Apple, the booming overseas market for iPhones is a sign of its marketing prowess but also a blow to Apple's business model, costing the company as much as $1 billion over the next three years, according to some analysts.

    Gah, I hate that terminology. Making a business model around a certain fee structure, and then failing to get people to play along with your business model, is not a cost. It's just like those piracy reports where they say they LOST a billion dollars because people who were never going to buy the product ended up not buying the product. Apple may fail to meet projections. Apple may wish more people would fork money over to their exclusive business partners. Apple may have had their heart set on a shiney new building or parking lot or bonus for Steve, but not being able to meet those expectations isn't a loss or a cost. It's a failure.

    • Product "makeup": (Score:3, Insightful)

      by hummassa (157160)
      That is the name we give here to fraudulently making the consumer think the product is cheaper (or has a greater value) than it's being paid. One example is making a package that has 180g of cookies (and sell it for, say, $1.90) at the same size of the package that has 200g ($2.00). The consumer is tricked to buy the "cheaper" package because (s)he evaluates only the general size of the packages and the price, without seeing that the other one is actually 5% cheaper.

      That is what Apple is doing with the iPho
      • by Speare (84249)
        Erm, no, it's more like advertising a box of ACME cake mix as being great with AJAX icing, and also offering a box of AJAX icing (under a deal where AJAX promises a kickback to ACME), and then nobody wants or likes the AJAX icing. The coupons may say there's a certain bundled price, but if customers don't want to bundle them, that is not a cost or a loss of revenue. It's a failed proposition. This isn't about a certain amount of grams per dollar. This is about failing to sell a secondary component in a
      • The ATT iphone plans aren't that bad. It seems that ATT has eaten much of the cost of Apple's cut. You can get unlimited iPhone data added to your existing ATT plan for only $20/month, which seems reasonable compared to other cell data plans.

        The EU plans on the other hand are crazy. You can almost see a 1 for 1 relationship between a normal phone plan costing $x and a plan with the Apple tax added (x$ + Apple Tax).
    • by Shados (741919)

      say they LOST a billion dollars because people who were never going to buy the product ended up not buying the product

      While they ARE usually very skewed, you know how these reports work, yes? Hint: they don't count the amount of pirated products, multiply it by the cost, and come up with a figure. A lot of people WOULD have bought the thing if they couldn't pirate it, and there ARE ways to -estimate- how many.

      Again, not saying its not skewed...but saying "people involved in piracy would have never boug

      • by Rogerborg (306625)

        saying "people involved in piracy would have never bought it anyway!!" is even MORE skewed.

        However, you can often say with confidence that they would never have bought it at the full retail price, because if they would have bought it, then they would have bought it.

        Granted, not in this case, but that's simple because the product isn't legally available anyway. And here we can definitely say that Apple haven't "lost" anything in the Chinese market, because the cost of their products in China is $0.

        • by Shados (741919)
          Well, two things.

          then they would have bought it

          Not really. If you talk with a lot of "pirates" honestly (that is, not when they're in panic mode trying to justify themselves), what you'll hear (sometimes in nicer words) is "Anyone would be a retard to buy something they can get for free". The main difference, is when you see someone with 250 PS2 games. Well, obviously they wouldn't have bought that many...but its fairly safe to expect they would have been somewhere around the usual attach rate of the conso

          • Re: (Score:2, Insightful)

            by hummassa (157160)

            Not really. If you talk with a lot of "pirates" honestly (that is, not when they're in panic mode trying to justify themselves), what you'll hear (sometimes in nicer words) is "Anyone would be a retard to buy something they can get for free". The main difference, is when you see someone with 250 PS2 games. Well, obviously they wouldn't have bought that many...but its fairly safe to expect they would have been somewhere around the usual attach rate of the console if they hadn't. Like I said. Someone who pirated 20 games wouldn't have bought 20 games. You need to compute the ratio and make estimations. "Hey, which DS games do you have?" "Oh, too many to count, I use an R4. Used to buy douzans of games, but then I discovered R4s!". Thats just an example of a recent conversation I had with someone...and the guy is single, no car, with an income in the 6 digits. And thats fairly common (though an extreme case).

            It seems to me that you know a lot of dishonest people, period.

            I live in an underdeveloped country. Minimum wage here is $200/month. What I can say to you is, about the people that buy "pirated" stuff here:

            1. People that buy a PS2 here (yes, not a PS3) wouldn't buy the console if they had not access to pirate games. They could not affort the price console+games.

            corollaries to 1: they wouldn't buy the non-pirated games, nor they would buy the console.

            2. People I know that buy pirated movies, in general, pay

            • by Shados (741919) on Tuesday February 19, 2008 @02:41PM (#22477956)
              I live in north america. The only stopping most people of doing anything is the fear of getting caught. If there isn't a fear of getting caught, things automatically become "right", or even MORE than right, because they are "sticking it to the man".

              The only question I have for you is the following: You said you lived in an underdeveloped country. Is it illegal in your country to pirate US-made stuff? I Don't live in the US myself, so I sure as hell don't follow US laws. I follow my country's laws (which however, support copyrights), and thats it. If tomorrow the law says that copyright is null and void, I'll only buy videogames (because I'm a collector), but movies will all get pirated, and software will be free (and as a software developer, I'll change job!).

              Personally though, when I was young, my family could barely afford food (if that). If we couldn't afford something, we didn't buy it. Simple as that. Didn't go and get a bootleg. Sure, it meant I spent most of my life with no computer, no videogame, no nothing, but Im still alive.

              (I'd make exception to that on softwares and tools that would help someone get OUT of poverty. Entertainment is one thing.... education and such, I feel is a RIGHT, not a priviledge, like games are.). Besides, if pirating tools and software get you rich, then you'll have money to buy them later :)
    • An easy way to summarize that:
      Apple (might) have $1b unrealized gains.

      Apple didn't have $1b in losses.

      (If I buy a lotto ticket for a $1M pot, I don't suddenly have $1M in losses when I don't win, I have $1M in unrealized gains.)
  • Lots of superficial lookalikes, yes, but none that approach the spec of the real thing. I seem to have grown immune to the Reality Distortion Field and have no real interest in the iPhone, but with the exception of the HTC Touch, I haven't seen one that's anything but cosmetic. And if anyone mentions the Neo 1973, I'll screw their pelvis to a cake stand.
    • by trongey (21550)

      And if anyone mentions the Neo 1973, I'll screw their pelvis to a cake stand.
      OOH, Ooh! Can I be next?
      Neo 1973 Neo 1973 Neo 1973

  • by GlobalColding (1239712) on Tuesday February 19, 2008 @11:56AM (#22475474) Journal
    Apple always known about the gray market, Apple always supported the gray market, Apple always whined about the gray market. The truth is they always wanted and needed all the incremental revenue they could get. On the front end I remember them going out to the gray resellers and collecting serial numbers swearing they will get to the bottom of their source. On the back end they continued to pump millions of MDF dollars into known gray resellers to subsidise their low margins and to encourage them to keep up the volume. With the dollar being low and economy sucking eggs at home they are happy to offload as many units overseas with or without subscriptions. This gets rid of inventories that they will eventually have to price-protect at disti or super-retailer levels, and frees up purchasers to buy the new better/bigger products. The Spice Must Flow.
    • Stock is taking a beating if a third of iPhones dont have ATT kickback profit.
      • Re: (Score:2, Insightful)

        The problem is they are commited to a minimum product velocity with or without subscriptions. Stocks will tank even more if they sit on a bunch of old hardware. Owners of Frys Electronics used to say "Treat everything like tomatoes, when its fresh and new everyone wants it, few days later you have to mark down to move it, later still you can sell it for pennies on the dollar for ketchup, after that it has no value". In manufacturing and in retail - the Inventory has to move. Ideally Apple would want it sold
  • Monday, while shopping for a simple mobile phone, I saw the iPhone on display in a mobile phone shop here in Hong Kong. I didn't ask for the price or so (I was looking for a simple phone, just for making phone calls), actually I wonder whether it is cheaper or more expensive than in the USA. And about two months ago I saw one "in the wild", a friend showed it off at a party. Also in Hong Kong of course.
    Oh and of course no SIM lock.
  • by LanceUppercut (766964) on Tuesday February 19, 2008 @12:48PM (#22476128)
    There's never been any negotiations between Apple and China Mobile. Needless to say, they have never broken down, since there was nothing to break down.

    Both lies were nothing more than another drops in the long stream of manipulative misinformation about Apple concocted by stock market criminals. Steve Jobs clearly debunked these rumors, but apparently, after waiting for a short while, the criminals are trying to milk this cow again.

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