Here’s Why Apple’s Deal With China Mobile Is A Game-Changer
Writing for the Motley Fool, Joe Tenebruso describes Apple’s rumoured deal with China Mobile as game-changer. Joe Tenebruso quotes long time Apple analyst , Piper Jaffray analyst Gene Munster, who believes that Apple is set to sell 17 million additional iPhone in 2014 because of this deal.
Apple could sell 17 million additional iPhones in 2014 as a result of the deal, which would represent only about 2% of China Mobile’s more than 750 million mobile subscribers. Munster believes this could boost Apple’s revenue by 5% in 2014. Based upon S&P Capital IQ estimates of about $185 billion, that 5% bump would equate to about $9 billion more in revenue for Apple. And Apple’s earnings should receive a greater than 5% boost, since the iPhone is considered to be among Apple’s highest margin products.
Additionally, Ben Thompson followed up his earlier piece Apple, China Mobile sign deal to offer iPhone with China Mobile adds the iPhone follow up, in which he pointed out that China Mobile may not need its own iPhone as he originally wrote. Any adjustment needed for the current iPhone to work on China Mobile can be address with a software update according to one expert.
Thompson also discussed other aspect of the deal such as number portability and the significant of specific mobile numbers to users. He also highlights that China Mobile has 45 million unsubsidized iPhone owners. With an official deal in place, China Mobile will be able to offer the iPhone on unsubsidised contracts, which would be the iPhone cheaper.
There are a couple of interesting nuggets here. First, the iPhone introduced the very idea of subsidization to China. I’m not surprised to hear this, as this was also the case in Taiwan. My last smartphone before the iPhone was the Nokia N73, for which I paid about $600 dollars from a phone dealer, and paired it with a $20/month contract from a carrier. That was totally normal. The iPhone, though, was introduced in Taiwan with a subsidy and higher monthly plan, which is now commonplace.
To be clear, Apple will reap significant growth from this deal, and by definition that growth is in the future. However, said growth will be quickly priced into the stock (if it’s not already). What I’m referring to is growth beyond this deal. Apple is hugely dependent on the iPhone, and the easiest way to goose iPhone growth is to add distribution. That, though, is largely over now.