Wed, Sep 12, 2007 page12

• iPhone knockoffs benefit as Apple delays Asia debut

  • BLOOMBERG
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  At the end of an alley outside Taipei, a black Mercedes-Benz sedan blocks a sliding-glass door that opens only from within. Inside, technophiles can buy iPhone knockoffs for two-thirds the legitimate price.

  With a touch-screen and Apple Inc's logo on the back, the "iClones" look just like the real thing. Apple won't offer iPhones -- which combine a phone, music and video player with wireless Internet -- in Asia until next year. The owner of the shop in Sanchong (三重), Taipei County, says he began selling "aifungs" in December, six months before the iPhone went on sale in the US.

  "We can't ignore iPhone because it's so hot,'' says Ben, who spoke on condition he be identified only by his first name because selling pirated phones is illegal.

  The clones show how fast Asian counterfeiters move. Ben says his company designed the fakes from pictures posted on the Internet before Apple chief executive officer Steve Jobs unveiled the iPhone in January.

  Knockoffs cost the global economy US$650 billion annually, the US Chamber of Commerce estimates.

  "The longer Apple delays, the more the pirates can rip the company off," says Lu Chia-lin (呂家霖), an analyst at Yuanta Core Pacific Securities ( 元大京華證券).

  Kevin Chang (張凱偉), a research analyst at JPMorgan Chase & Co, says carriers need time to modify their networks for the iPhone's technology.

  Apple, which said yesterday it sold its millionth iPhone, intends to fight back.

  "We are committed to pursuing counterfeiters and others who steal from us and deceive our customers," Apple spokeswoman Jennifer Bowcock says.

  On its Web site, Apple asks consumers to report fake hardware to counterfeit@apple.com.

  The knockoff phones are produced in batches of 1,000 at a factory in Shenzhen, China, across the border from Hong Kong, says Ben, 26. He advertises his phones on the Internet and sells them for NT$8,900 (US$270).

  He says his operation has sold more than 10,000 clones in China, Hong Kong, Singapore, Malaysia, Australia and the US.

  In Shanghai, the knockoffs are kept under the counter of a cramped market stall on the sixth floor of a trash-strewn building near the railway station.

  Ni, who spoke on condition he be identified only by his surname, says he started selling the knockoffs after reading a newspaper story on the iPhone hype.

  The phones go for 1,000 yuan (US$133), and Ni says most of his sales are made over the Internet.

  He refused to identify his supplier, saying: "That's a trade secret."

  "What I'm selling is a Chinese iPhone," says Ni, 48. "It's not a fake iPhone. It works perfectly fine."

  Shenzhen and the surrounding Pearl River Delta is the largest handset-making region in China.

  Pirates buy components from local firms, then assemble the clones, says Yang Yuxin (楊宇欣), an analyst at BDA China Ltd in Beijing, adding that as many as 400 factories can be hired to do the work.

  Legitimate manufacturers such as Hon Hai Precision Industry Co (鴻海精密), the world's largest contract maker of electronics, including iPhones, say they don't participate in the illicit trade.

  "Protecting the designs and intellectual property of our clients is one of the most important things we do," says Edmund Ding (丁祈安), a Hon Hai spokesman, when asked if parts are sold to other factories. "If we find out any of our employees is doing that, we will fire them immediately."

  Last month, the US asked the WTO to declare that China's laws to safeguard patents and copyrights failed to meet international standards.

  In Sanchong, Ben's clones carry a notice in fractured English that reads: "Waring. It will break the law without authorized by Apple Inc, if you use `iPhone' logo on any electronic pruducts."

  While the knockoffs resemble iPhones, they don't use Apple software. Ben says his phones have the advantage of working on any network, while iPhones connect only to AT&T Inc's system.

  "It's the exterior we are imitating," Ben says. "If customers want functions, we can offer more and much better functions than the real phone."
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