Big Numbers in China Mean Big Opportunity for Apple Inc.


Although the majority of wireless subscribers in the U.S. are already using smartphones, that's not the case in the world's most populous country. In fact, not even half of China's wireless subscribers are using smartphones. Even more, the number of 3G subscribers in the country is growing at a roaring pace. What does this spell out for Apple ? Opportunity -- especially with a China Mobile deal finally in the bag.

The opportunity
Verizon says that 70% of its subscribers now have smartphones. That's up from 67% at the end of Q3 -- not bad. The large concentration of smartphones on the network bodes well for the success of smartphones in the U.S. as a whole. But it's far from a representation of the global picture.

In China, just 34% of mobile subscribers use smartphones. On the flip side, that's 66% of China's wireless subscribers not using smartphones, or 813 million people -- a massive opportunity. And thankfully for Apple, China's 3G subscribers are growing rapidly. In 2013, smartphone sales were up 79% in the country. Deriving more than 50% of its revenue from sales of its iPhone, Apple is poised to benefit from this trend.

iPhone 5c.

Big numbers growing at meaningful growth rates mean big opportunities. Even if growth of China's 3G subscribers drops to 50% in 2014, that would mean an additional 208 million 3G subscribers. Claiming just a fraction of these new smartphone sales to first-time 3G users would be meaningful for Apple.

Of course Apple's new arrangement with the world's largest carrier should certainly help. China Mobile's year-end 3G subscribers are up 118% from 2012. Even more, its reported 191.6 3G million subscribers is up more than 10 million in just one month. And the growth for China Mobile won't be stopping anytime soon; it has 575.5 million subscribers that haven't yet tapped into 3G.

It's tough to argue against growth for Apple's iPhone segment with the opportunity in China in sight. Indeed, analysts are fairly bullish for the company's prospects in the country. On average, analysts expect about 19 million incremental iPhone sales from China Mobile alone in 2014.

Cantor Fitzgerald analyst Brian White pegs his estimate for iPhone sales from the China Mobile deal in 2014 at 22 million. By his calculations, that could add about $4.00 to Apple's earnings per share in 2014. An additional $4.00 to Apple's trailing-12-month EPS would boost the important metric by about 10% -- not bad for a company that trades at just 14 times earnings.

Whether Apple hits 22 million incremental iPhone sales in China in calendar 2014 or not, it's the 10,000-foot view that looks enticing: Fast growth of the world's largest smartphone market means plenty of opportunity for Apple over the long haul.

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Originally published