Tomahawk, WI 08/15/2014 (Basicsmedia) – China Mobile might have dented hopes for both Apple Inc. (NASDAQ:AAPL) and Samsung Electronics increasing their market share in China after announcing that it will cut up to $2 billion from its devices subsidies this year. The move essentially means that iPhone and Galaxy products will eventually be expensive taking into consideration that prices will have to increase. The move by China Mobile to reduce its subsidies on smartphones comes after immense pressure from regulators in the country who have instructed it to stop spending too much money in advertising according to Bloomberg’s David Ingles.
China Mobile has consequently slashed its subsidies kitty form $5.5 billion to $3.5 billion having already used $2.5 billion in the first half of the year.
“What’s happening is that a lot of this Telco in China, state-owned, obviously have been told by regulators, you know, to stop spending so much money on advertising and marketing to gain customers. So what China Mobile announced yesterday was a $2 billion cut in their device subsidies. Initially, the budget was $5.5 billion that’s now been brought down to $3.4 billion of which 2.5 billion was already used up in the first half,” said Mr. Ingles.
China Mobile move has already got the attention of Citigroup Inc. (NYSE:C) that has consequently raised its share price target to about $100 HKD with Barclays PLC (ADR) (NYSE:BCS) currently rating the stock as an ‘Overate. A reduction of subsidies by China Mobile, on the other hand, can be seen as one of the ways that regulators are trying to use to ensure local producers gain a sizeable amount of market share with their products.
iPhones are now set to be more expensive as customers will have to cater for addition costs that were initially catered for by the subsidies. Xiaomi and Lenovo group now look set to increase their market share as their products will be extremely cheaper compared to the likes of iPhones and Galaxy’s.
It waits to be seen if brand loyalty will greatly help Apple Inc. (NASDAQ:AAPL) with its iPhone sales in China as most of the people look set to shun the devices due to their high costs.