Apple and China Mobile Finally Come Out


Apple took quite a downturn last week when a deal with China Mobile did not materialize as expected on Dec. 18, but it recovered a bit to end just under $550 in the days that followed.

It has been an impressive run from just under $400 on June 28, as rumors on the China Mobile deal spurred the price increases. On Sunday, the announcement finally hit the news.

Apple® and China Mobile today announced they have entered into a multi-year agreement to bring iPhone® to the world's largest mobile network. As part of the agreement, iPhone 5s and iPhone 5c will be available from China Mobile's expansive network of retail stores as well as Apple retail stores across mainland China beginning on Friday, January 17, 2014.

The two models will be available for preorder from China Mobile beginning Christmas day.

While iPhones have been available on two rivals networks, China Mobile is the world's largest mobile phone operator with about 760 million subscribers. While iPhones are far too expensive for the majority of the Chinese population, there are still many consumers who can afford one. It has been estimated that at least 10% of China Mobile's customers are likely to buy Apple's iconic product, which translates into 76 million potential new sales.

Although this would likely be spread over several years, as China Mobile is also rolling out its new 4G network, many consumers will want to be part of the newest technology as early as possible. In a recent press release, the company stated:

China Mobile is rolling out the world's largest 4G network. By the end of 2013, China Mobile's 4G services will be available in 16 cities including Beijing, Shanghai, Guangzhou and Shenzhen. By the end of 2014, China Mobile plans to complete the rollout of more than 500,000 4G base stations, which will cover more than 340 cities with 4G service.

Apple has been losing investor support as Google's Android systems have gained market share, with recent news reporting that the mobile operating system accounts for over 80% of global smartphone share. But, other data shows that in September, Apple dominated the over-$500 smartphone segment with 90% U.S. share.. Competition from Samsung is stiff, but the iPhone dominates this high-end market.

In the past few months, Apple has regained upward momentum, pushed by several factors. First, activist investor Carl Icahn announced his purchase of 4.7 million shares. Then, positive fiscal Q4 results were reported, illustrating that not only were sales impressive, but the deterioration of gross margins had stopped. Next, the enormous success of the iPhone launch (9 million sold in the first weekend) pushed prices up again. Finally, rumors of the China Mobile deal lifted the stock until last Wednesday, Dec. 18.

The question remains as to how China Mobile customers will address their phone preferences. Apple is on a roll, leading sales in the holiday season with both smartphones and tablets. Additionally, it is likely that China Mobile may enter into a price war with China Unicom and China Telcom, both of which have been offering iPhones for some time. This would only increase sales for Apple.

Investors have been waiting many years for this deal. For China Mobile, the deal brings the most popular smartphone to its customers. For Apple, it brings an enormous new customer base, and a very significant increase in sales. A portion of this is already factored into the current price, but with the stock on the rise, however, this could be the tinder to push it up to the next level.

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Malcolm Manness owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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