Apple Inc. (AAPL) Drops in China, China Mobile Ltd. (ADR) (CHL) Looms

How can Apple benefit from a China Mobile partnership?

Apple currently does not offer an iPhone compatible with China Mobile Ltd. (ADR) (NYSE:CHL)’s TD-SCDMA 3G network. Apple would need to develop a compatible iPhone for China Mobile in order to access 740 million new customers. An agreement allows Apple to tap into a broader distribution channel to deliver products faster to end-users to meet consumer demand. Apple’s premium brand would lure users from competitors, adding significant pressure on Chinese vendors’ sales growth.

Greater China accounted for 13% of Apple’s revenue in the second quarter. Greater China includes China, Hong Kong, and Taiwan. Apple’s sales in Greater China plummeted 43% from the previous quarter and fell 14% from the same quarter last year. A deal with China Mobile would optimize sales and recover market share from Chinese vendors going forward.

How can China Mobile benefit from an Apple partnership?

China Mobile has recorded low user adoption of its 3G network. China Mobile has about 137 million 3G users, which represents less than 20% of the company’s subscriber base. This compares to China Unicom and China Telecom that boast 38% and 50% 3G adoption, respectively. Apple would improve China Mobile’s 3G adoption with its devices, while attracting a larger-volume of 3G users to the carrier’s high-revenue data plans. Apple has access to over 350 million subscribers through China Telecom and China Unicom. Both have profited on Apple’s iPhone models, and China Mobile has the lucrative opportunity to do the same.

Bottom line

In recent quarters, Apple has faced stiff competition in the Chinese mobile market from Samsung and Chinese smartphone makers. A distribution deal with China Mobile could improve Apple’s sales and market share in the Greater China smartphone market. China is an important market that Apple should not ignore. IDC predicts smartphone shipments in China will exceed 460 million units by 2017, and reach a market size of $117.8 billion.

Apple is expected to announce its next new iPhone at a special event on Sept. 10, according to AllThingsD. Analysts anticipate the long-awaited budget iPhone for developing markets and such a device could help the company crack the code in China.

The article Apple Drops in China, China Mobile Looms originally appeared on and is written by Christopher DeSousa.

Christopher DeSousa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile.

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