IPhone Knockoffs Steal Market Share as Apple Delays Asia Sales
By John Liu and Chinmei Sung
Sept. 11 (Bloomberg) -- At the end of an alley in Taiwan's most violent city, a black Mercedes-Benz sedan blocks a sliding- glass door that opens only from within. Inside, technophiles can buy iPhone knockoffs for two-thirds the legitimate price.
With a touch-screen and Apple Inc.'s logo on the back, the ``iClones'' look just like the real thing. Apple won't offer iPhones -- which combine a phone, music and video player with wireless Internet -- in Asia until 2008. The owner of the shop in Sanchung, a Taipei suburb, says he began selling ``aifungs'' in December, six months before the iPhone went on sale in the U.S.
``We can't ignore iPhone because it's so hot,'' says Ben, who spoke on condition he be identified only by his first name because selling pirated phones is illegal.
The clones show how fast Asian counterfeiters move. Ben says his company designed the fakes from pictures posted on the Internet before Apple Chief Executive Officer Steve Jobs unveiled the iPhone in January. Knockoffs cost the global economy $650 billion annually, the U.S. Chamber of Commerce estimates. Apple spokeswoman Jennifer Bowcock wouldn't discuss how much the company loses as a result of phony products.
``The longer Apple delays, the more the pirates can rip the company off,'' says Chialin Lu, an analyst at Yuanta Core Pacific Securities Co. in Taipei.
Jobs hasn't explained the delay. Kevin Chang, an analyst at JPMorgan Chase & Co., says carriers need time to modify their networks for the iPhone's technology.
Shenzhen Factory
Cupertino, California-based Apple, which predicts it will sell 1 million iPhones in the three months ending Sept. 30, intends to fight back.
``We are committed to pursuing counterfeiters and others who steal from us and deceive our customers,'' Bowcock says. On its Web site, Apple asks consumers to report fake hardware to counterfeit@apple.com .
The knockoff phones are produced in batches of 1,000 at a factory in Shenzhen, China, across the border from Hong Kong, says Ben, 26. He advertises his phones on the Internet and sells them for NT$8,900 ($270). On Sept. 5, Jobs cut the price of the top iPhone to $399, a $200 reduction.
``The guts aren't hard,'' Ben says. ``The hard part is the design and the exterior.''
He says his operation has sold more than 10,000 clones in China, Hong Kong, Singapore, Malaysia, Australia and the U.S.
In Shanghai, the knockoffs are kept under the counter of a cramped market stall on the sixth floor of a trash-strewn building near the railway station.
Ni, who spoke on condition he be identified only by his surname, says he started selling the knockoffs after reading a newspaper story on the iPhone hype.
`Chinese iPhone'
The phones go for 1,000 yuan ($133), and Ni says most of his sales are made over the Internet. He refused to identify his supplier, saying, ``That's a trade secret.''
``What I'm selling is a Chinese iPhone,'' says Ni, 48. ``It's not a fake iPhone. It works perfectly fine.''
Shenzhen and the surrounding Pearl River Delta is the largest handset-making region in China.
Pirates buy components from local companies, then assemble the clones, says Yang Yuxing, an analyst at Beijing-based researcher BDA China Ltd. As many as 400 factories can be hired to do the work, he says.
Apple isn't the only victim. Fakes come with labels such as ``Nokian,'' imitating the brand of Nokia Oyj, the world's biggest mobile phone maker, and ``Snog Ericsson,'' a corruption of Sony Ericsson Mobile Communications Ltd.'s trademark, says Neil Mawston, a London-based analyst for Strategy Analytics Ltd.
``By some accounts, they may make up 5 percent to 10 percent of total volumes this year,'' he said in an e-mail.
Protecting Secrets
Legitimate manufacturers such as Hon Hai Precision Industry Co., the world's largest contract maker of electronics, including iPhones, say they don't participate in the illicit trade.
``Protecting the designs and intellectual property of our clients is one of the most important things we do,'' says Edmund Ding, a Hon Hai spokesman, when asked if parts are sold to other factories. ``If we find out any of our employees is doing that, we will fire them immediately.''
Still, designs can be copied so quickly that South Korea's Samsung Electronics Co., Asia's biggest handset maker, decided to reveal only the front of its new music and video phone at the Hong Kong trade show last year. Seoul-based LG Electronics Inc. showed customers its new handset behind closed doors.
In August, the U.S. asked the World Trade Organization to declare that China's laws to safeguard patents and copyrights failed to meet international standards.
In Sanchung, Ben's clones carry a notice in fractured English that reads: ``Waring. It will break the law without authorized by Apple Inc., if you use `iPhone' logo on any electronic pruducts.''
While the knockoffs resemble iPhones, they don't use Apple software. Ben says his phones have the advantage of working on any network, while iPhones connect only to AT&T Inc.'s system.
``It's the exterior we are imitating,'' Ben says. ``If customers want functions, we can offer more and much better functions than the real phone.'' |
