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China Watch: Analyst Says Lower-End iPhone Will 'Dilute' Apple Brand

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Lenovo and Volkswagen also make the news.

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Investors will soon be able to trade gold ETFs in China, as China's securities regulator today published provisional rules for gold ETF trading.

An official from the China Securities Regulatory Commission told Xinhua that there is, however, no specific timeframe as yet for the listing of gold ETFs.

Meanwhile, Chinese investors are also developing a big appetite for silver. They are "now buying silver because gold topped out in 2011 and silver is much more affordable," Mark Thomas, author of email-alert service provider SilverPriceAdvisor.com, told MarketWatch.

A Silver Institute report issued in December compiled by Thomson Reuters GFMS confirmed Thomas's analysis, saying that retail investor demand for silver is projected to increase "robustly over the short to medium term, as a wider population base gains access to silver bars and coins."

Nonetheless, global investment demand for silver is still outweighed by industrial demand, such that mere investment demand "will probably not be enough to sustain any meaningful price gains for silver given the macroeconomic backdrop," Will Rhind, managing director of ETF Securities, told MarketWatch.

Here is this week's business news:
Apple (NASDAQ:AAPL): Apple's fiscal first-quarter numbers may have come well under analysts' expectations, but the tech giant could perhaps find solace in strong China sales numbers.

For the three months ended December 29, 2012, Apple's revenue from the Greater China region, which includes mainland China, Hong Kong, and Taiwan, rose to $6.83 billion from $4.08 billion a year ago, while iPhone sales in the region more than doubled.

The rising importance of Greater China, now Apple's third-largest market after the Americas and Europe, can be highlighted by the Cupertino, CA-based company's decision to report China data separate from the Asia-Pacific region for the first time ever in this quarter's earnings release. Greater China is also by far the fastest-growing market for Apple.

"We have established a new operating segment of Greater China given the very significant contribution of that region to our overall business," Peter Oppenheimer, Apple's Chief Financial Officer, said in an earnings call on Tuesday, according to Bloomberg.

Amid rumors that Apple will release a cheaper iPhone to compete with local firms like Huawei (SHE:002502) and ZTE (SHE:000063) that have been gobbling up the lower-end market share, some analysts have said that it would not be in the company's best interest to do so, as it would dilute Apple's brand.

"If you think of Apple, it's like a bright star in the galaxy, shining so brightly and everyone is looking at it. But it might have dimmed a bit as other stars such as Samsung (PINK:SSNLF) have popped up," said TZ Wong, an analyst at research firm IDC, according to Reuters. "I don't think it's in Apple's interest to further dim its star power by stepping into the low-end segment."

Lenovo (PINK:LNVGY): Lenovo's smartphone business in China is now profitable, the company's CFO Wong Wai Ming said.

Only a few months back, Lenovo CEO Yang Yuanqing had said that it would be at least two quarters before it would make a profit from selling smartphones in the mainland because of heavy investment spending.

However, Wong, at the World Economic Forum in Davos, said that his company's China smartphone unit was already in the black, reported the Wall Street Journal.

Wong also added that Lenovo was also selling a rapidly increasing number of smartphones in emerging markets like India, Vietnam, and Russia.

"Just a couple of months in, the numbers are good, but from a very low base," he said, according to the Journal.

Jolla: Finnish smartphone upstart, Jolla, which was founded by a number of ex-Nokia engineers, is coming for Google's (NASDAQ:GOOG) crown in China. Jolla has created a new open source mobile operating system, Sailfish, that it plans to launch in China later. The company hopes that by offering it free-of-charge, Sailfish will be able to gain market share from leader Android, which has a 90% share of the market.

According to Forbes, Jolla's Hong Kong partners have planed a $270 million alliance to reach Chinese consumers. The company also signed a distribution deal last year with D.Phone, China's largest mobile phone retailer, with 2,000 stores to sell Jolla's first phone this summer.

Jolla is reportedly pricing its model around the premium $500-$800-per-handset range, putting it in direct competition with the likes of the iPhone and Samsung's Galaxy S3.

Volkswagen (PINK:VLKAY): While Apple considers whether or not to introduce a cheaper iPhone for the lower-end segment of the China market, German carmaker Volkswagen is reportedly also weighing a similar decision.

"That's an issue we're currently looking at," Volkswagen brand development chief Ulrich Hackenberg told Reuters.

Volkswagen was compelled to consider this move because the so-called budget car segment is the biggest part of China's auto market, with over 3 million of these vehicles sold each year.

If Volkswagen does decide to enter the no-frills car market, it will compete with other foreign companies like Renault (PINK:RNSDF) with the Dacia and Nissan (PINK:NSANY) with its Datsun. The budget cars, likely to be priced between 5,000 ($6,728) and 10,000 euros ($13,300), will likely be produced via a joint venture with one of the company's two Chinese joint venture partners.
No positions in stocks mentioned.
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