China Mobile Ltd. (ADR) (CHL): A Critical Week for Apple Inc. (AAPL)

A lot has changed in the smartphone and tablets arena over the last week. Microsoft Corporation (NASDAQ:MSFT) acquired Nokia Corporation (ADR) (NYSE:NOK)’s handset business, SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) launched a new SmartWatch, and BlackBerry Ltd (NASDAQ:BBRY)’s management has made it clear that it is looking for a fast-sale to be wrapped up before November. In a completely changed environment, where does Apple Inc. (NASDAQ:AAPL), the leader in the U.S. smartphone segment, stand?

Apple Inc (AAPL)

Well, if last week was decisive for Microsoft Corporation (NASDAQ:MSFT), Nokia Corporation (ADR) (NYSE:NOK) and Samsung Electronics Ltd: (OTC: SSNLF), the week starting today could be critical for Apple Inc. (NASDAQ:AAPL)’s future. On Tuesday, September 10th, the company will be revealing its new iPhone. Reviews on this product will largely influence the stock’s performance going forward.

The deal with China Mobile

However, what I consider to be the most important event expected for this week is the official announcement of a deal with China Mobile Ltd. (ADR) (NYSE:CHL). This agreement, quite likely to be closed soon, could result in more than 15 million additional iPhone sales in 2014. This adds an estimated $3.25 of EPS. About 70% of these sales are expected to come from the iPhone 5C, a lower-cost model that still carries wider gross margins than the regular model (38%, up from 32%). So, not only should you expect for EPS to grow, but also for margins to do so.

Many anticipate the deal with China Mobile Ltd. (ADR) (NYSE:CHL) will help Apple Inc. (NASDAQ:AAPL) regain some of the lost ground in China. During the third quarter of 2013, the company experienced a 14% drop in sales, year-over-year. One of the main causes for this loss was the 5% descent in its market share.  According to Canalys (a research firm), Apple Inc. now ranks seventh, trailing SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF), the market leader, and several other domestic manufacturers like Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) and Huawei Technologies Co.

As the largest Smartphone market -as of last year, China represents a huge growth opportunity for the firm. The number of first-time smartphone buyers largely surpasses that of the U.S. and Apple Inc. (NASDAQ:AAPL)’s penetration is far from capped.

In addition to these two strong catalysts –the launch of the new iPhone and the deal with China Mobile,  “there are multiple reports that Apple Inc. (NASDAQ:AAPL) is also close to closing a partnership deal with NTT DoCoMo (DCM) and its ~60mm users” (SeekingAlpha). Whether this was to occur or not, the upside potential is plenty and the stock price, still reasonable. Trading at 12.4 times its earnings, at a slight discount to the industry average, Apple Inc. (NASDAQ:AAPL) still looks like a buy and hold case to me.

Disclosure: Javier Hasse holds no position in any stocks mentioned