) and China Mobile (
) have both received a lot of press recently pertaining to a
potential agreement over the iPhone. Both bullish and bearish
perspectives are missing the mark however, when it comes to the
world's largest mobile phone market.
[caption id="attachment_65572" align="alignright" width="300"
caption="The iconic Apple store in Shanghai's Pudong district"]
As the result of the stock's recent wild fluctuations, Apple had
over the past few weeks. After its 6%+ slide earlier in the week,
commentators were citing a number of potential reasons for the
plunge: selling before new capital gains taxes take effect, new
margin requirements, and worries about Apple's position in
While the former two scenarios are quite plausible, the latter
is based on superficial conclusions. Many market observers cited
a Reuters report
that Apple had slipped into sixth place in the Chinese smartphone
market. Although true, this drop had been predicted by most who
closely observe the market.
The drop in market share is actually little reason to fret,
given that the number of Apple iPhones sold in the country,
as confirmed by iPhone 5 pre-orders
, continues to climb on an annualized basis. Apple is losing share
in China's smartphone segment simply because the low end of the
smartphone sector has exploded (
up to 60 million last quarter
) and many handsets are now reasonably priced for China's vast
Whereas a few years ago, 1000 RMB ($160) might get you a phone
on which "Snake" was the height of gaming, now, that same amount
can fetch a ZTE, Huawei, or Coolpad (and, come on, who doesn't want
a Coolpad?) low-end smartphone equipped with Angry Birds.
Importantly, these aren't customers that Apple was courting in the
first place. In the high-end market, Apple's only real competition
What of the second piece of misleading news from the bearish
camp - a report that China Mobile had agreed to a deal with Nokia
to carry the Finnish firm's latest high-end offering. Some pundits
argued this means an Apple/China Mobile deal would not come to
fruition, which is absurd. Most mobile phone carriers around the
world offer multiple brands from which their customers can choose,
and it's unreasonable to think that China Mobile wouldn't offer the
iPhone because they are also selling the Lumia 920T.
However, you should pay attention to how Apple and China Mobile
come to terms over the App Store. Remarks from China Mobile
indicate the firm
wants a piece of the action from the App Store
, but Apple is hesitant to give in for fear other carriers around
the world would want a similar deal.
My opinion is that a deal will come to fruition at some point --
probably next year, as both sides do stand to gain from such an
accord. However, the bullish Apple camp has probably over-hyped the
importance of any deal. You would think that access to the almost
700 million China Mobile customers would be a boon for the company.
Why? The majority of people who want or have wanted an iPhone
are not waiting until it becomes available (and fully-functional)
on China Mobile's network. Millions have already switched to China
) and China Telecom (
) in order to obtain a fully-functioning iPhone. More than 15
million people already own an iPhone on the China Mobile network,
although because of chip limitations, the phone only has 2G
capability on this network. The majority of China Mobile users are
unable to afford the 4,500 RMB ($720) price tag for an iPhone 4S.
While a deal would probably help sales incrementally, it would not
be the windfall many pundits make it out to be.
This is not to imply that Apple's future in China is not bright.
A China Mobile deal is just not the main catalyst for Apple to
increase its raw numbers in China. Rather, in addition to organic
growth as younger Chinese grow wealthier and can afford Apple
wares, the iPhone 5 and its
is what has the potential to move the proverbial needle.
While Apple has already won over the
cosmopolitan women of Beijing and Shanghai
, it hasn't won over the businessmen of Guangdong, Jiangsu, and
Zhejiang. Because previous iterations of Samsung phones had far
better Chinese functionality, businessmen outside of first-tier
cities have not come to the iPhone en masse. Given that Apple
emphasized the iPhone's Chinese functionality in its latest
iteration, this could help Apple obtain a new swathe of customers
outside of the urban chic set.
In sum, the pullback in Apple could very well be an opportunity.
But if you're going to go long or short Apple based on a
China-related thesis, make sure you know the full story.
Disclosure: Author and family are long AAPL and CHL