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Apple and the China Mobile 'Concern'

Stocks in this article: AAPL CHL CHA CHU

The news comes following a research report from Morgan Stanley analyst Katy Huberty, who noted sales of the iPhone were trending higher than she expected, according to her AlphaWise Smartphone Tracker. As of March 15, there was demand for 42 million iPhones, compared to Huberty's original estimate of 38 million to 39 million iPhones. She cited the following as the reasons:

"(1) Supply chain production tends to lead Apple's revenue recognition, so as iPhone production declines from its peak in C4Q13, demand could outstrip supply. (2) New US carrier promotions in C1Q14 driving incremental demand vs. late 2013 when carriers strictly enforced their 24-month contract terms. (3) Similarly, several large US retailers ran iPhone promotions this quarter, including Walmart and Best Buy."

Huberty did note that some of the bump in demand could be attributed to the deal with China Mobile, but that Greater China, which includes deals with China Telecom (CHA) and China Unicom (CHU), as well as China Mobile could have a tougher comparison this quarter, due to earlier iPhone releases in the country. 

Apple recently unveiled an 8GB iPhone 5c, targeted not only at the Chinese market, but also several markets in Europe to boost sales of the device. The 8GB iPhone 5c, according to Apple's Web site, costs RMB 4,088, while the 16GB and 32GB models cost RMB 4,488 and RMB 5,288, respectively.

Apple is trying to boost its position in China, where according to research firm IDC, it held just 7% of the smartphone market, up from 6% in the third quarter of 2013. Apple trails Samsung, which runs Google's (GOOG) Android operating system, in China. The South Korean-based company owns 19% of the Chinese market, where it tops the list.

The opportunity for Apple is enormous in China, with China Telecom, China Mobile and China Unicom having 448.4 million 3G subscribers, the segment Apple is focusing on. "While China Telecom and China Unicom had an early start with the iPhone, China Mobile finally began offering the iPhone for official delivery on 1/17, and we believe this relationship represents an attractive long-term opportunity for Apple in China," Cantor Fitzgerald analyst Brian White wrote in a note to investors.

Apple's story in China will not be measured by one month's worth of data, nor a single quarter. Cook and his team in Cupertino have continuously stressed that China is an enormous opportunity for Apple. China Mobile will continue to be a huge part of Apple's success, simply due to the sheer size and scope of its network, in the world's most populous country. White notes that 2014 is poised to be an exciting year for Apple, "as it relates to the ramp with China Mobile and the potential introduction of larger iPhones (i.e., 4.7-inch and 5.5-inch versions) that we believe can help Apple gain market share in the country this year."

Even if that success takes a little longer than some originally thought.

--Written by Chris Ciaccia in New York

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