Earlier this year,
Chief Executive Officer (CEO) Tim Cook expressed his belief that
China will become the company's largest market in the near
future. To meet this target, to-date in 2013, Apple's CEO made a
couple of visits to China to meet the chairman of the world's
largest telecom operator
China Mobile (
It seems that these visits have finally paid off. Reportedly,
Apple has inked a deal with the Chinese telecom operator.
Although there was no official confirmation of the news from
either of the parties, The Wall Street Journal noted that iPhone
will be possibly available to China Mobile subscribers by the end
of this month.
Apple's partnership with China Mobile is expected to reap massive
gains for the iPhone maker. The deal gives Apple access to more
than 759 million mobile users in its second biggest market after
Currently, China along with the U.S. contributes more than 10% of
Apple's revenues. To show the country's growing importance, Apple
simultaneously launched its new iPhones (5S and 5C) in China
along with the U.S. and U.K. in September.
In fiscal 2013, Greater China revenues jumped 13.0% from 2012 to
$25.42 billion. The company noted that the improvement was
primarily driven by higher demand for its products among the
affluent middle class in China. Apple has 12 retail stores in
China and Hong Kong.
Despite this significant growth, Apple continues to lose market
share in China. According to IDC's September report, Apple's
smartphone market share was under 10% in the third quarter of
2013. Apple was placed at #6, down from #5 in the previous
However, IDC expects Apple's smartphone market share in China to
double from this year to 2014, primarily driven by the China
Mobile deal. Despite a hefty price tag for its new iPhone 5C
(4,488 yuan or $733.0) that primarily caters to medium and
low-end consumers, IDC believes that a partnership will attract
Apple has been offering iPhones in China through two relatively
small carriers, China Unicom Ltd. and
China Telecom Corp (
. As compared with China Mobile, China Unicom and China Telecom
have 276 million and 183 million customers, respectively.
We believe that this partnership will boost Apple's competitive
position in China. The company faces stiff competition in the
country from low cost smartphone devices offered by Samsung,
Huawei, Lenovo, ZTE and Xiaomi, which are powered by
Android operating system.
Improving market share in China is expected to boost top line and
profitability. We believe that the deal will help Apple to gain
significant market share without sacrificing its iPhone gross
margin, going forward.
Currently, Apple has a Zacks Rank #3 (Hold).
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