Apple Preparing to Deploy iPhone in China?

Apple is said to be hard at work readying the iPhone's launch in China.
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Updated from 1:54 p.m. EDT

China looks set to be the next frontier in

Apple's

(AAPL) - Get Report

push for world domination, and there are signs that the consumer tech giant is ramping up its efforts to launch the

iPhone

into the world's largest mobile phone market.

Despite the smartphone's popularity elsewhere in the world, Apple has yet to clinch a deal to sell the iPhone in the lucrative Chinese market. Recent activity in the component space, however, suggests that this may be about to change.

"We're an importer of USB memory flash, and I've got information from two independent suppliers that the quantity of memory is short

as a result of a very huge order from Apple," wrote Frank Koehnen of Sauerlach, Germany-based firm

Frank Connection

, in a recent email to the

Street.com

.

"It could be a big deal in the iPhone segment, for example, a contract with a Chinese mobile phone provider," he wrote, explaining that such a deal has been anticipated for months. Another possibility, he added, is that Apple needs the flash memory for a netbook launch.

Intriguingly, a report on

The China Post

Web site last week said that Taiwan-based

Hon Hai Precision

, which manufactures iPhones for Apple, boosted its workforce by 5% in the last quarter.

At least one analyst thinks that we will see the iPhone in China within the coming months.

There is an 80% chance of the iPhone being sold in China before the end of 2009, according to Bernstein Research analyst Toni Sacconaghi, with

China Unicom

likely to be the initial carrier and

China Mobile

following later.

"Given the size of the Chinese market, the long-term opportunity is clearly large," he wrote, in a note released last week. Sacconaghi estimates that smartphone shipments in China will reach 35 million this year, so even a 20% share of the market would give Apple around 7 million units.

Despite a spending slowdown that has impacted global cellphone sales, the Chinese market is expected to grow 7.7% in 2009, according to research firm

iSuppli

. The company said that sales of cellphones in China should grow from 222.1 million units in 2008 to 239.1 million units this year.

Clearly, China presents a major cash cow for smartphone makers looking to open up new revenue streams. Apple's archrival

Research In Motion

(RIMM)

, for example, has already teamed with China Mobile to sell its BlackBerry, although there is also stiff competition from low-cost, locally-developed devices such as China Unicom's RedBerry.

On its recent third-quarter earnings call, Apple said that it will bring the iPhone to China sometime "within the next year." Apple COO Tim Cook explained that the firm is currently working on the project but said firm would not provide any additional information when contacted by

TheStreet.com

on Monday.

The iPhone is already sold in Taiwan, Hong Kong, and Macau, although industry restructuring, regulatory issues and extended negotiations with carriers have hindered its Chinese launch, according to Sacconaghi.

"Of all the obstacles, we believe the biggest sticking points currently are around ownership of smartphone apps and carrier exclusivity," he wrote. "Our belief is that Apple will sign non-exclusive distribution deals, and may ultimately need to support other apps besides those from its own Apps Store."

Sacconaghi also thinks that pricing could be an issue. With scarce subsidies, Chinese consumers are used to paying relatively high handset prices, although a $600 iPhone would rank as one of the most expensive devices on the market, he says.

"Apple may try to persuade the carriers to subsidize the iPhone, but with a relatively low Average Retail Price Unit (China Unicom's overall ARPU is just $6 a month), a meaningful subsidy is unlikely," added the analyst.

Shares of Apple rose 38 cents, or 0.3% to $129.57, reversing the broader decline in tech stocks which saw the Nasdaq slip 0.45%.