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SHANGHAI: Factories here churn out iPhones that are exported to the United States and Europe. Then thousands of them are smuggled back into China.
The strange journey of Apple's popular iPhone, to nearly every corner of the world, shows what happens when the world's hottest consumer product defies a company's attempt to introduce it slowly in new markets.
The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing that leads friends to ask friends, "While you're in the U.S., would you mind picking up an iPhone for me?"
These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: Why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are actually registered on the networks of its wireless partners in the United States and Europe?
The answer now seems clear. For months, tourists, small entrepreneurs and smugglers of electronic goods have been purchasing iPhones in the United States and then shipping them overseas.
There the phones' digital locks are broken so they can work on local telephone networks, and they are outfitted with localized software, essentially undermining Apple's effort to roll out the phone with exclusive partnership deals, similar to its primary partnership agreement with AT&T in the United States.
For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.
The strange journey of Apple's popular iPhone, to nearly every corner of the world, shows what happens when the world's hottest consumer product defies a company's attempt to introduce it slowly in new markets.
The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing that leads friends to ask friends, "While you're in the U.S., would you mind picking up an iPhone for me?"
These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: Why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are actually registered on the networks of its wireless partners in the United States and Europe?
The answer now seems clear. For months, tourists, small entrepreneurs and smugglers of electronic goods have been purchasing iPhones in the United States and then shipping them overseas.
There the phones' digital locks are broken so they can work on local telephone networks, and they are outfitted with localized software, essentially undermining Apple's effort to roll out the phone with exclusive partnership deals, similar to its primary partnership agreement with AT&T in the United States.
For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.
