After six years of negotiations, Apple has reached a multiyear deal with China Mobile, China’s largest wireless carrier, to sell the tech giant’s flagship iPhone device in that country. The partnership, which was expected, gives Apple much greater access to the world’s largest mobile market, with an estimated 1.2 billion users. Financial terms of the deal were not disclosed, and iPhone pricing details will be released at a later date. China Mobile is the world’s largest wireless carrier with 760 million subscribers.
To put that in perspective, that’s more than three times the number of U.S. users who subscribe to mobile services offered by AT&T and Verizon Wireless — combined. The China Mobile deal is very important for Apple because the company’s growth rate in the U.S., its biggest market, has been slowing lately. The iPhone has been available on smaller carriers in China for years, but sales have faced pressure in the face of lower-cost competition from devices made by Samsung and other manufacturers that use Google’s Android mobile operating system.
Analysts estimate that Apple could sell between 20 million and 30 million iPhones on China Mobile’s network next year. That would effectively double the number of iPhones it sold in the country in 2013. Colin W. Gillis, a technology analyst at BGC Financial, said in a recent research note to clients that the China Mobile iPhone launch is one of the last remaining short-term catalysts that could propel Apple shares substantially higher. As 2013 draws to a close, Apple’s stock price is essentially flat for the year, although the shares have soared 33% in the past six months, reversing steep losses in the first half of the year.
In a joint statement, Apple and China Mobile said the iPhone 5s and 5c models will go on sale in Apple and China Mobile stores beginning Jan. 17. China Mobile customers can preregister for phones starting Dec. 25. “Apple’s iPhone is very much loved by millions of customers around the world,” said Xi Guohua, chairman of China Mobile. “We know there are many China Mobile customers and potential new customers who are anxiously awaiting the incredible combination of iPhone on China Mobile’s leading network.”
China Mobile is in the process of building the world’s largest 4G network, which refers to the latest generation of high-speed mobile broadband access. The companies said the iPhone on China Mobile’s platform will support the carrier’s 4G/TD-LTE and 3G/TD-SCDMA networks. By the end of 2013, China Mobile’s 4G services will be available in 16 Chinese cities, including Beijing, Shanghai, Guangzhou and Shenzhen. By the end of 2014, China Mobile said it 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 enormous respect for China Mobile, and we are excited to begin working together,” said Apple CEO Tim Cook. “China is an extremely important market for Apple, and our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network. iPhone customers in China are an enthusiastic and rapidly growing group, and we can’t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China Mobile customer who wants one.”
Apple’s deal with China Mobile is a major coup for Cook, who has faced pressure from some Wall Street analysts and shareholders over a perceived lack of innovation at the company since the death of his mentor, revered Apple co-founder Steve Jobs. Those concerns are probably overblown — the latest iPhone and iPad models feature impressive improvements and have been a huge hit with customers. This year Apple will likely enjoy the most lucrative holiday quarter in its history. The company expects holiday sales between $55 billion and $58 billion, which is at the high end of Wall Street expectations.
But the fact remains that under Cook’s tenure, Apple has yet to introduce a category-busting new product on the scale of the original iPod, iPhone or iPad. Analysts are hoping to see a groundbreaking new TV product over the next year, or possibly a wearable computing device like the long-rumored Apple iWatch. New markets and new products will be crucial if Apple is to accelerate its growth. Last quarter, Apple’s net profit declined from the same period last year, when the company posted net profit of $8.2 billion. And sales only ticked up slightly from $36 billion during the same period last year.
China represents a potential financial bonanza for Apple for at least four reasons. It’s the world’s largest consumer market with a population of 1.3 billion. It has the world’s largest Internet user base at well over 500 million and growing quickly. China’s economy is growing at nearly 8% per year, putting disposable income in the pocket of a burgeoning middle class. Finally, China has demonstrated an insatiable appetite for Apple products.
Demand for the iPhone on China Mobile’s network is likely to be intense. During a quarterly-earnings call with analysts last year, Cook described Chinese demand for the iPhone 4s as “staggering” and “off the charts,” adding that despite a “bold” bet on the Chinese market, the company still underestimated the Chinese appetite for the product. When the device first went on sale in China, violence broke out at Apple stores after it quickly sold out. In short, Apple has simply not been able to meet Chinese demand for the iPhone. The China Mobile deal will go a long way toward addressing that problem.