Popularity of iPhone threatens profits

SHANGHAI, Feb. 18 (UPI) -- The popularity of Apple's iPhone is undermining the company's potential profits in China, a Monday report said.

Apple has been pursuing an exclusivity contract with China Mobile to introduce the phone there. But contract negotiations have broken down, The New York Times reported.

But, the product is so popular smugglers have been busy supplying the Chinese market with the phones, which sell in China for $400 to $600. Chinese manufacturers are also busy making clones of the iPhone -- known collectively as iClones.

Installing Chinese language software in smuggled phones adds about $25 to the price and smugglers charge about $30 per phone, the report said.

The number of iPhones in China is unknown, but there is a gap in the number of iPhones Apple sold last year -- 3.7 million -- and the 2.3 million that are registered in the United States and Europe.

Apple could lose $1 billion in the next three years by missing out on roughly $120 per phone it would get if an exclusivity contract was signed.

"The (business) model is threatened," said Charles R. Wolf, an industry analyst.