Apple, It's About Time for China Mobile


With Apple's (NAS: AAPL) new iPhone 5 just being announced to the world, it's about as good a time as any to revisit one of the biggest carrier opportunities in front of the company and the device: China Mobile (NYS: CHL) .

That's a lot of subscribers
This one carrier has been one of the most glaring omissions in Apple's carrier lineup thus far, primarily due to unique homegrown network standards that the carrier uses, TD-SCDMA for 3G, and TD-LTE for 4G. In the meantime, Apple has brought on its two smaller rivals, China Unicom (NYS: CHU) and China Telecom (NYS: CHA) , as official iPhone carriers.

Smaller may be something of an understatement, because China Mobile's subscriber base dwarfs the other two combined, with 688 million mobile subscribers at the end of July. That's more than double the other two carriers combined, as well as more than twice the entire U.S. population of about 315 million.

Sources: China Mobile, China Unicom, China Telecom.

On the other hand, 3G penetration lags at China Mobile, which is partly related to those unique standards we just mentioned, because handset vendors generally go for wider compatibility around the world when designing smartphones.

Only 10% of China Mobile's subscriber base use 3G, compared to 37% at China Telecom. As its smaller rivals grow their 3G subscriber base, China Mobile has been losing overall 3G market share over the past year.

Sources: China Mobile, China Unicom, China Telecom. Author's calculations.

It's pretty clear that both Apple and China Mobile would benefit greatly from a partnership. Apple gains access to the largest mobile subscriber base on Earth, while China Mobile gets to strengthen its device lineup as its rivals chip away at its lead in the 3G-subscriber market.

Investors have asked before and they'll ask again: where, oh where is a China Mobile iPhone?

Welcome, Qualcomm
Back in February, baseband processor kingpin Qualcomm (NAS: QCOM) announced a new family of chips -- chips that have just what Apple investors are looking for:

Qualcomm's latest Gobi 4G LTE connectivity reference platform includes embedded GPS capability and features an application programming interface (API) with LTE extensions, which is compatible with leading connectivity standards, including CDMA2000� 1xEV-DO Rev. A and Rev. B, HSPA , dual-carrier HSPA , , with integrated backwards compatibility to HSPA and EV-DO.

Source: Qualcomm. Emphasis added.

One of the chips announced, the MDM9615 specifically, is what's expected to be found inside the iPhone 5 once the device reaches the public's hands and gets taken apart piece by piece. The highly technical sleuths over at Anandtech are also rather confident of the presence of this baseband.

The curve ball here is that Qualcomm has been faced with supply constraints from Taiwan Semiconductor Manufacturing (NYS: TSM) all year, related to its 28-nanometer production, which these chips are built on. That could threaten to hold back the iPhone 5, in general, if those chips are in short supply.

The Middle Kingdom
China is expected to surpass the U.S. as the largest smartphone market this year, with estimated growth of 70%, to 150 million units, according to Strategy Analytics. Meanwhile, Google (NAS: GOOG) Android continues to proliferate there, as with many other parts of the world, thanks to its ubiquity and ability to tap lower price points than Apple.

Even in the higher-end market of devices costing 3,000 yuan (roughly $473), Android has grown share, while Apple's shrinks.


Q2 2011

Q2 2012







Chinese market share for smartphones costing 3,000 yuan or more. Sources: Analysys, The Wall Street Journal.

Hooking up with China Mobile is expected to turn that tide. Enough is enough, Apple. It's time to bring on China Mobile.

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