By PAUL MOZUR
BEIJINGâ€"Apple Inc.'s new iPhone is aimed in part at the growing ranks of straying Chinese power users like James Liang.
Mr. Liang, chief executive of Chinese online travel website Ctrip.com, once used an iPhone. Now he uses a Samsung Galaxy Note, which he says lets him more easily peruse documents on the road due to its large screen.
"I've been seeing more middle and upper management using it as well now," he said. "They're probably just following the trend of executives using it."
Concerning the iPhone's market share, he said, "it just shows if you have the same product without differentiating it, it doesn't take much for the competition to come and take some of it."
Apple remains the top seller of high-price mobile phones in China, which research firm IDC expects will overtake the U.S. to become the world's No. 1 smartphone market by market share by the end of the year. But its hold on the lucrative niche is slipping, as rivals such as Samsung Electronics Co. and HTC Corp. unveil pricey devices with big screens and fast processors.
Meanwhile, local playersâ€"once content to slug it out in the low-margin, low-cost end of the market, which Apple eschewsâ€"are adding to the competitive threat. Telecommunications heavyweights Huawei Technologies Co. and ZTE Corp., and smaller Chinese companies like Beijing Xiaomi Technology Co., have unveiled less expensive phones with competitive specs.
The iPhone accounted for 38% of second-quarter Chinese sales of smartphones that cost more than 3,000 yuan ($474), according to research group Analysys International, compared with 44% a year earlier. Meanwhile, smartphones running Google Inc.'s Android mobile software claimed a 59% share the high-end niche in the quarter compared with 41% a year earlier. Apple sold 2.3 million handsets while Android makers sold 3.5 million in the segment, second-quarter Analysys statistics show.
"Us Chinese, we are used to jumping from one thing to another," said 26-year-old Xiao Qing, who said he switched to an HTC phone from his iPhone 3 more than a year ago. He added, "Today one thing is big and tomorrow people are getting something else."
China's rapid rise in disposable income has helped make the iPhone a symbol of middle-class status and aspirations. But that quick rise also makes Chinese consumers fickle and eager for the next big thing, analysts say.
"China has had a series of love affairs with one phone manufacturer after another," said David Wolf, founder of consulting firm Wolf Group Asia, citing former China highfliers like Nokia Corp. He added, "where each [before Apple] failed was in taking that leadership and good will for granted."
The shift highlights the challenge and expectations the Cupertino, Calif., company faces with its iPhone 5. Unveiled on Wednesday for a September 21 release in the U.S. and other markets like Hong Kong and Japan, the iPhone 5 features a larger screen, an updated operating system and improvements that include upgraded mapping capability. Apple has also indicated the new software will feature an enhanced Siri virtual assistant service that will speak Chinese. New Apple products commonly appear in China months after their U.S. release.
Although the iPhone 5 was a popular topic on Sina Corp.'s Twitter-like Weibo microblogging service on Wednesday, many Chinese Internet users appeared lukewarm. Pan Shiyi, a widely followed real-estate mogul, posted a graphic comparing the specs between the iPhone 4S and the iPhone 5 with the comment, "Jobs is gone, Apple's innovation has come to an end."
Internet users reposted the comment more than 25,000 times, debating the statement. One user writing under the name Xiao Xian Dou called Mr. Pan's perspective "pessimistic," adding, "[the iPhone 5] is very eye-catching, regardless of whether you're attracted to itâ€"at least I am."
Apple's previous version, the iPhone 4S, was initially a hit in China. Its release there in January prompted pushing and shoving outside one of its Apple Stores in Beijing among customers and what local media said were scalpers looking to immediately resell their purchases at higher prices.
But some customers in China grumbled that the phone wasn't all that different from the previous iPhone 4. When Apple reported disappointing earnings for the fiscal third quarter ended in June, it blamed in part a big China iPhone inventory buildup that contributed to a $2.2 billion drop in sales between the second quarter and the third. Analysts also said anticipation for the iPhone 5 was a major factor in the slackening demand.
Even if it concedes market share at the top end of the phone market, Apple will likely continue to reap major profits from China. Analysys International expects smartphone sales this year to reach 130 million this year and 165 million next year compared with 81 million in 2011, leaving competitors plenty of room for growth. The iPhone generally carries a retail price above 4,000 yuan in China, more than just about every other phone, giving it significant profit margins.
Apple also has ways to boost market share if it chooses. China Mobile Ltd., the world's largest mobile carrier with 688 million mobile subscribers and 69 million 3G subscribers, has long said it is in talks with Apple about offering a version of the iPhone that works on its proprietary technology. The new fourth-generation iPhone compatibility could also help China Mobile launch the iPhone once it rolls out its 4G network, which it said in August it hopes to do by the second half of 2013.
Currently Chinese carriers China Unicom (Hong Kong) Ltd. and China Telecom Corp. offer subsidized versions of the iPhone. IPhone users who pop in a SIM card from China Mobile can use the service only at slower second-generation download speeds.
The Chinese smartphone market differs greatly from the U.S. Phones in China aren't subsidized by telecom carriers to the same degree as they are in the U.S., and consumers are often willing to pay $500 or more for the privilege of having the latest device.
Many in the business believe the iPhone will bounce back. Wang Kai, who owns an Apple retail booth in an electronics mall in Beijing's Chaoyang financial district, said the sheer number of customers who pass by his shop to ask when the new iPhone will come out reassures him.
Still, he believes the market has changed. "Competition now is much harder, in my view," he said. "The iPhone 5 won't be quite the national treasure it once was."
Write to Paul Mozur at paul.mozur@dowjones.com
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