IPhone Lust Revives Underground U.S. Market Joining China

Bloomberg

 

The Craigslist ad is direct: “I’ve got what you’re looking for — 10 prime new-in-box iPhone 6 Plus!”

The price for the phone without a contract was for as little as $1,300, though bulk pricing may be possible, according to the ad posted this week by someone claiming to be in San Jose, California. That’s $451 more than a similarly equipped 64-gigabyte model sold by Apple Inc.

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“You name a public place in the South Bay, and I’ll meet you there anytime,” wrote the poster, who didn’t respond to a request for comment. “Please do not be more than 5 minutes late. CASH ONLY.”

The ad is one of more than 1,000 on Craigslist for the iPhone 6 Plus in the San Francisco Bay Area. In New York, Chicago, and other cities across the U.S., hundreds of other ads also offered the latest big Apple phone, which went on sale on Sept. 19 in 10 countries and have since been in such high demand that the Cupertino, California-based company faces inventory challenges.

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The ads show how the U.S. has joined China as a place where the secondary market for iPhones is alive and well. Yet while China’s gray market is thriving because the new iPhones aren’t available there — China wasn’t one of the countries to get the handsets last week — the U.S. secondary market is being driven by a lack of inventory, with people willing to pay up for convenience, said Carl Howe, an analyst with 451 Research LLC. Some U.S. buyers are also making purchases to resell the products later to Chinese acquirers, he said.

Profit Opportunity

“Supplies are limited and some people don’t want to take the time to actually go to a store,” Howe said. “Further, the gray market for phones in China runs as high as $3,000 for an iPhone 6 Plus, so even at $1,000, opportunists can make a profit.”

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Apple said this week it sold a record of more than 10 million iPhones the first weekend that its two new versions hit stores. The models feature larger screens, which are popular in China since many consumers rely on a smartphone instead of a laptop or desktop computer. The iPhone 6 has a 4.7-inch (11.9-centimeter) display, while the iPhone 6 Plus has a 5.5-inch screen.

Nick Leahy, a spokesman at Apple, didn’t respond to a request for comment.

EBay Orders

In a sign of how the U.S. secondary iPhone market is thriving, more than 4,400 iPhone 6 and 6 Plus devices have been sold on EBay Inc. since Sept. 20 through yesterday for an average price of $1,060, according to an analysis by e-commerce market analytics firm Terapeak Inc. That’s on pace to exceed secondhand sales of the iPhone 5s and 5c last year, according to Terapeak.

“The trend line right now over the last three days has jumped up around 75 percent in terms of sales,” said Aron Hsiao, an analyst with Palo Alto, California-based Terapeak. This suggests “the iPhone 6 launch is going to be not just bigger but much bigger.”

Those willing to sell their iPhones to China are set to find voracious demand. An estimated 500,000 units of the new iPhones have already been smuggled into China, Jun Zhang, an analyst at Rosenblatt Securities Inc., said in an e-mail.

As many as 5 million new iPhones may be smuggled into China before the new models are officially available, according to Neil Shah, Mumbai-based research director for devices at Counterpoint Technology Market Research.

Alarming Interest

“There is an alarming interest in the new iPhone 6 series to be bought internationally” given that Apple has added support for a wider range of international wireless networks in the new models, Shah said. That makes it easier “for international versions of iPhones to proliferate into China,” he added.

With no official date for release of the new iPhones in China, black market vendors outside Apple’s flagship store in Beijing’s Sanlitun shopping area were selling the new iPhones at almost double the list price this week.

Buyers overseas looking to feed that demand triggered a fistfight in line at an Apple outlet near Yale University in New Haven, Connecticut this week, according to the city’s police department. The company limits buyers to two devices per visit.

Three members of two New York-based groups were arrested after the fight, New Haven police have said. The groups had traveled from New York, about two hours away by car, to buy the iPhone 6 and iPhone 6 Plus in order to resell them in China, said David Hartman, a police spokesman.

China Hurdles

In China, the delay of iPhone 6 and 6 Plus availability stems from the fact that the devices have cleared just two of three regulatory steps, the official Xinhua News Agency reported Sept. 18. The devices still need network access licenses from the Ministry of Industry and Information Technology, Xinhua said.

The sale of the iPhone 5s and 5c last year was the first time Apple made new phones available in China on the same date as the global release. Previously, the typical three-month lag between device introduction and China availability helped fuel smuggling of about 20 million iPhones into the country annually, according to estimates from Rosenblatt Securities.

Chinese Scrutiny

The Chinese government is looking for the new phones. Shenzhen customs at two border crossings connecting Hong Kong on Sept. 19 through 21 seized more than 600 iPhone 6 and iPhone 6 devices hidden in 36 cases among travelers trying to bring the new iPhones into mainland China, according to the People’s Daily’s website, which reported this on Sept. 23, citing local customs. Among those cases, Shenzhen customs seized 8 iPhone 6 gadgets hidden in boxes of custard cake, coffee and toothpaste.

The government-backed state broadcaster also cautioned against smuggling iPhones into the country on its news commentators’ microblog account on Weibo.

“It is not worth it if all these are just for getting the phone a couple of months earlier,” the broadcaster warned, according to a translation. “Men shouldn’t become slaves of iPhone 6.”

In the U.S., not everyone has been successful in tapping into that hunger. Nick Davis, 23, a systems administrator near Houston, wanted to take advantage of the gray-market demand when he pre-ordered an extra iPhone 6 and posted an ad on Craigslist offering it up for sale.

“I didn’t get one call,” he said. “I’m just going to return it to Apple. I think people have the perception that they’re sold out everywhere, but no one really wants to spend a thousand bucks.”

To contact the reporters on this story: Tim Higgins in San Francisco at thiggins21@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Ben Livesey

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