Apple's iPhone Deal with China Mobile Has Huge Profit Potential

Apple pushes aggressively into China market
Apple pushes aggressively into China market

Apple (AAPL) buys many of the components for its electronic devices from Chinese suppliers. Now, it plans to get more aggressive about selling those devices in the world's largest cell phone market, which could substantially boost its earnings. Beijing's Ministry of Industry and Information Technology has just announced that there are now 910 million mobile phone subscribers in China. Users of 3G networks rose to almost 74 million. The number of wireless subscribers in the world's most populous nation is more than three times the number in the U.S., and its growing much more rapidly.

The Shanghai Daily reports Apple will begin to sell the iPhone this fall with China Mobile (CHL), by far the largest wireless operator in the People's Republic. Apple already has a partnership with smaller China Unicom (CHU). "A new iPhone with China Mobile's network will debut and the cooperation will be announced in September," China Mobile's Beijing-based marketing official Liu Yang said on his microblog, according to the newspaper.

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China could be crucial to the growth of iPhone sales, which in turn are essential to growth in Apple earnings. Apple's stock price has stagnated below $345 since early June, down from its high water mark of $364.90 -- this despite the fact that the Wall Street forecast consensus for its share price is $450.

Some on Wall Street are concerned that iPhone sales growth rates could slow. Smartphones powered by Google's (GOOG) Android OS have passed Apple in operating system market share, according to most research firms that cover OS data. Apple sold 18,647,000 iPhones in its most recently announced quarter according to its 10-Q, an increase of 113% over the same period a year ago.

It's impossible to underestimate the value of the Chinese market to smartphone companies as that nation's legions of wireless users grow rapidly toward the 1 billion mark. If the iPhone can capture a market share in the People's Republic similar to its U.S. level, Apple's earnings will skyrocket.

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