Chinese smugglers brought in thousands of illegal iPhone 6 and 6 Plus phones into the country from Hong Kong in the hopes of striking it rich, but instead, the nefarious activity could cost them big time.
The iPhone 6 and 6 Plus haven't hit the legal Chinese market, one of the biggest smart phone markets in the world, because they haven't been approved by the Chinese government.
So, smugglers get Hong Kong citizens to pre-order phones and then buy them at $325 more than the original price. They get the phones to electronic markets in China, inside tea boxes or truck axles, and then sell them for between $1,960 and $2,450. But there is a problem – few people want to buy the phones.
Scalpers have been forced to slash the price to between $1,060 and $1,436 because of a decrease in demand and there are too many illegal phones on the market.
“This year the scalpers’ losses will be big,” one scalper told The New York Times. "Stocks of the iPhone 6 are way too high right now."
This is a bad sign for Apple's standing in the Chinese high-end smart phone market. In the past, customers would pay a premium price for iPhones because they were seen as a status symbol. Now, new local competitors are giving Apple a tough time. Companies such as Xiaomi and Meizu Technology are gaining popularity at less than half the price of an iPhone.
“The local players aren’t only playing the price game,” Kitty Fok, managing director of the research firm IDC, told The New York Times. “They have products that cater to the local market, big screen sizes, optimized connectivity for China and dual SIM cards.”
Ms. Fok said there are 50 million iPhone users in China, and she estimates that Apple will sell about 4 million phones a month. But both Samsung and Apple are feeling the impacts of growing local competitors. Samsung's sales dropped in China last year, and Xiaomi became the country's largest smart phone maker.
Successful smugglers are hoping that a crackdown on phones being brought into China will help push prices back up. On Thursday, Hong Kong customs officers seized 286 phones from smugglers. In another bust, officers found hundreds of phones in truck axles.
Though Apple announced it sold a record 10 million iPhone 6 and 6 Plus devices, the company has come under fire recently. In the first couple of days after the iPhone was released, customers complained about their phones bending. It started a viral backlash on social media, called #Bendgate. Since then, Apple has stated that it only got nine formal complaints about a bent phone.
But last Wednesday, Apple came under fire again when customers complained that iOS 8.0.1 caused their phones to stop working. Apple removed the update within an hour, and now has a fixed 8.0.2 update. These controversies have caused the company's stock to take a small hit. In the past five days, Apple stock has fallen 1.24 percent.
If the price decrease of illegal iPhone 6 and 6 Plus phones is any indication, Apple may have a hard time selling its new phones in the Chinese market, which are rumored to go on sale on October 10, according to MacRumors.