Taiwan’s Fair Trade Commission has slapped a fine of $666,700 on Apple Inc. (AAPL - Analyst Report) for restricting the prices charged by local vendors for iPhone contracts. This violates Taiwan’s free trade law as Apple Asia requires carriers to obtain its permission before setting contract prices on iPhones.
Reportedly, Apple Asia also instructed carriers to alter service contract and subsidy prices, which led to the imposition of the fine. These three carriers, namely Chunghwa Telecom Co Ltd, Taiwan Mobile Co Ltd and Far EasTone Telecommunications Co Ltd, entered into reseller contracts with Apple, by virtue of which it can set the right prices.
This news comes at a time when Apple announced its tie up with China’s leading mobile phone carrier, ChinaMobile (CHL - Snapshot Report) , which is expected to help the iPhone maker to penetrate the world’s most populous country at a much faster rate. Although the Taiwan Fair Trade event may have some negative impact on Apple.
Now it remains to be seen how Apple sets the price in China, which is the second biggest market for iPhone. It is likely that the company can set prices over $700 for the phone in China. With the average annual income in China of about $2,100, the price point could be matter of concern, as it will not be affordable to many.
Given this, the iPhone deal might not be a game changer that many expect, though it will boost revenues. The real question is by how much, and this will only be answered once the iPhone goes on sale for China Mobile in a little less than a month from now (Jan 17th).
Although the China Mobile deal is a positive for the company, the current dispute with Taiwan’s Fair Trade Commission may rationalize growth prospects to some extent. Moreover, increasing competition from other companies such as, Samsung, Sony (SNE - Analyst Report) , Nokia Corp. (NOK - Analyst Report) and HTC are also likely to weigh on the stock.
Apple currently has a Zacks Rank #3 (Hold)