Apple iPhone Meets China's UPhone

CUPERTINO, Calif. ( TheStreet) -- Apple ( AAPL) partner China Unicom, which has the exclusive deal to sell the iPhone in China, will start selling its own smartphone later this year, according to a published media report.

Bloomberg reports that China Unicom will launch the UPhone, underlining the challenges Apple faces in the increasingly competitive Chinese phone market.

Despite the iPhone's phenomenal success in the U.S. market, Apple is up against a host of heavyweights in China, which includes smartphones from Lenovo Group and China Mobile, as well as Taiwanese giant HTC.

Zhang Zhijiang, head of China Unicom's technology department, told Bloomberg that the phone will use a "totally new" Linux-based operating system and is being developed by Okwap, Huawei Technologies and ZTE. The company has been selling Apple's iPhones since late last year.

China is seen as a key front in Apple's ongoing smartphone war with the likes of Google ( GOOG) and Research In Motion ( RIMM).

Apple has so far struck a positive tone about its Chinese business. During the consumer giant's recent fourth-quarter conference call, Peter Oppenheimer, Apple's CFO, said that the company is "very pleased" with customers' response to the iPhone 4 in China. Oppenheimer also noted that the firm's four Chinese retail stores are seeing the most customer traffic of any Apple stores.

Bloomberg, however, reports that China Unicom is struggling to capitalize on its exclusive iPhone deal, with the company reporting four straight quarters of profit drops.

As the world's most populous nation, China presents a great opportunity for smartphone makers such as Apple and HTC, particularly at a time when the country is undergoing rapid economic growth.

China was the world's second-largest smartphone market during the second quarter of 2010, according to research from Canalys. Some 6.9 million smartphones were sold in China during the quarter, and the number is expected to explode during the coming years.

China Unicom has not yet responded to TheStreet's request for comment on this story.

--Written by James Rogers in New York.

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