China Mobile Ltd. ( CHL) HKG:0941 will start selling Apple Inc. ( AAPL) iPhones on December 18 th along with the launch of its 4G TD-LTE service, reports Xinhua News Agency, China’s official press agency. Analysts Peter Misek, Jason North and Billy Kim at Jefferies note that those who maintain a sell position on Apple may not have considered the China Mobile effect yet, which will give some tailwind to fiscal 2014 earnings estimates.
Estimates do not include China Mobile iPhone units
Apple Inc. ( AAPL) and China Mobile Ltd. ( CHL) HKG:0941 have been in talks for a while now, and Apple is reportedly developing a device compatible with China mobile's 4G network, according to the release. It is also mentioned that China mobile will launch 4G TD-LTE service first in Beijing, Guangzhou and Chongqing, eventually followed by Shanghai as it is still working on its 4G network. The analysts feel that most of the street estimates have not yet included China Mobile iPhone units. "As a result, we believe there is a tailwind to FY14 estimates Jef 172.4M units and $99.1B revs, St $98.4B revs with FQ2 Mar Jef 40.8M units and $24.2B revs, St $24.4B revs seeing some upside due to the TD-LTE launch ahead of Chinese New Year," says the report. The Apple Inc. ( AAPL) and China Mobile negotiations have had to overcome many hurdles, such as incompatibility with China mobile's 3G TD SCDMA and premium pricing of iPhones, owing to which the network carriers have to provide subsidies to make them affordable. The recent launch of baseband chipsets by Qualcomm has solved the technical glitch by making China Mobile's 3G network and also its upcoming 4G TD-LTE network accessible.
Apple should plan inventory carefully
According to some analysts, post-Apple and China Mobile partnership, the iPhone maker would have to keep at least 3 to 4 million handsets aside to meet the initial demand. Also, it may require a few more months for China Mobile Ltd. ( CHL) HKG:0941 to install a larger number of base stations to provide better service. China Mobile has a subscriber base of 750 million compared to China Telecom's 250 million subscribers. However, the subscriber growth rate of China Mobile has been lower than rivals China Unicom and China Telecom. China Mobile posted a growth rate less than 10% year over year for the last 12 months. That said, the 3G growth rate of the network carrier is faster, but at a lower penetration level. Also, China Mobile has a host of handset vendors that it can partner with, including Samsung or Chinese companies such as Xiaomi.