Apple Inc. (AAPL): Can Emerging Markets Save This Sinking Ship?

On the other hand, its lower-range product pipeline provides an opportunity to finalize a deal with the largest Chinese network carrier, China Mobile Ltd. (NYSE:CHL) . China Mobile controls almost two-thirds of the Chinese wireless market, but has only 41% of 3G subscribers, as its proprietary 3G network requires a specific chipset. This has been a major bottleneck for China Mobile Ltd. (NYSE:CHL) to increase its 3G penetration. Currently, China Mobile is the only player which doesn’t have a contract with Apple Inc. (NASDAQ:AAPL) to sell iPhones. Even after adding 26 million 3G subscribers in the first quarter, compared to 8 million year-over-year, China Mobile’s average revenue per user declined from $11.57 to $9.78. This suggests that China Mobile Ltd. (NYSE:CHL) is not able to add quality subscribers in the absence of iPhone.

Overall, 3G penetration is only 25% in China, which provides an immense opportunity for this Chinese telecom player to expand. Even with this low penetration level, China has become the world’s biggest smartphone market by volume, surpassing the U.S. With the expansion of 3G services, China’s large 2G subscriber base will continue to shift from 2G services to 3G services which will provide higher revenue. This will also be beneficial for Apple, as with new and cheaper iPhones it will be able to capture major market share from an expected deal with China Mobile Ltd. (NYSE:CHL) in 2014. This low-end iPhone will increase its Chinese addressable market by 200%.

Peer Review

As one of Apple Inc. (NASDAQ:AAPL)’s major competitors, Samsung’s strength lies in the speed of its new product launches. It provides features that are similar or better to the iPhone for a lesser price. According to a recent Morgan Stanley forecast, the iPhone will have a demand of 31 million units in the current quarter against 45 million units of Galaxy phones.

It is becoming increasingly difficult for Apple to maintain its “premium pricing policy” given the traction that Samsung has with its Galaxy pricing. For reference, the Galaxy S 4 is priced at 20% less than the pricing of iPhone 5, while its features beat iPhone 5 in almost every aspect.

Talking about Apple Inc. (NASDAQ:AAPL)’s other competitor, Nokia Corporation (ADR) (NYSE:NOK), it continues to lose market share to Samsung and other Android phone makers. The only positive aspect for now is its increased focus on low-priced Windows smartphones. According to AdDuplex, Nokia currently has an 80% market share of the Windows Phone market. It is expected that in 2013, Windows Phone will start gaining acceptance and will reach to 45 million units. As Samsung and HTC have reduced their focus on Windows Phone software, it provides an opportunity for Nokia Corporation (ADR) (NYSE:NOK) to further tap the Windows Phone market.

Nokia Corporation (ADR) (NYSE:NOK) has recently launched a cheaper range of Lumia smartphones, which will help it to gain larger market share in countries like India and China. Its Lumia 520 model is already a success in China, as it was sold out for the second time in Nokia’s official Jingdong store. With its recent launch of Lumia 520 for China Mobile Ltd. (NYSE:CHL), Nokia Corporation (ADR) (NYSE:NOK) will see a further revenue upside.