Apple Scores Huge China Mobile Deal
Dec 6, 2013 5:00 AM PT
Apple and China Mobile reportedly have cut a deal that will bring the iPhone to China's largest mobile carrier.
The official announcement of China Mobile's iPhone rollout is expected on Dec. 18, when the carrier plans to raise the curtain on its new 4G network, according to a Thursday report in The Wall Street Journal.
In the past, China Mobile said it would consider selling the iPhone only after introducing 4G services, the Journal noted.
"The reason this deal is important is it adds seven Verizons to Apple's available market," Carl Howe, research director for the Yankee Group, told MacNewsWorld. An October estimate put China Mobile's subscribers at 759.3 million.
The two companies have been in talks for several years but seemed unable to ink a pact, despite the popularity of Apple products in China.
"We believe Apple finally met its match at the negotiating table and thus the reason this agreement has taken so long to consummate," Brian J. White, an analyst with Cantor Fitzgerald, wrote in a Thursday research note.
"As such, we believe the bells and whistles that Apple typically requests with an iPhone agreement were likely pared down with China Mobile," he continued.
Impact Beyond China
Depending on its details, the deal could have a positive impact on Apple's presence in other Asian markets.
"I could see carriers in places where Apple is underdistributed, like India, taking a look at how a similar deal might work for them," Patrick Moorhead, founder and principal analyst with Moor Insights and Strategy, told MacNewsWorld.
"Carriers like China Mobile want to stay in control. They saw Western carriers lose control to Apple. Indian carriers will be interested to see if China Mobile maintains control or if Apple is coming in and dictating terms," Moorhead said.
"If China Mobile's experience is positive, then I could see a lot more emerging regions warming up to distributing more Apple products," he added.
Although the deal has yet to be formally announced, Apple watchers have already begun to guess its impact on the company's sales. Apple will sell 20 million to 24 million iPhones to China Mobile in 2014, resulting in an earnings windfall of US$4 a share, Cantor Fitzgerald's White predicted.
Potential iPhone sales would likely be somewhat lower, in the view of Trip Chowdhry, managing director for equity research for Global Equities Research, but he sees other Apple products also benefiting from the China Mobile deal.
Apple could sell 15 million to 18 million iPhones with China Mobile, Chowdhry estimated, adding that market studies show iPhone sales also drive iPad and Mac personal computer sales.
For example, 40 percent of iPhone users become iPad users, while 20 percent become iMac or MacBook users.
That will fatten Apple's revenue cow even further, increasing company revenues by 8 percent in 2014 and boost EPS to $8 to $9, Chowdhry calculated.
"China Mobile will provide the catalyst for Apple to expand its ecosystem in China," he told MacNewsWorld.
Calming Wall Street
Whether other Apple products will ride the iPhone's coattails is a matter of debate, however.
"I see the impact limited to iPhones," Moorhead said. "I don't see a big play for radio-connected tablets in China."
Currently only 2 percent of tablets in China connect to a cellular network, he noted. By contrast, 10 percent of tablets in the United States do so.
Nevertheless, if Apple can post big numbers as a result of a China Mobile deal, it could quell some of the company's Wall Street critics.
"It could take some of the heat off Apple to a degree," Gartner Research Vice President for Mobility Van L. Baker told MacNewsWorld.
"Apple continues to point to China as being one of the most important markets to the company," Baker said. "In order for them to effectively penetrate that market, they've got to be able to address the vast majority of the population. This should help on that front."
"It won't completely take the heat off Apple from Wall Street," he said, "but it will be a step in that direction."