Apple, China Mobile: It's Here (Update 1)

Updated from 8:14 a.m. EST to include more analysis in the 14th paragraph.

NEW YORK (TheStreet) -- It's here, even if it isn't official, just yet.

The long-awaited deal between Apple (AAPL) and China Mobile (CHL) has started to commence, with Fortune first spotting the reservation site, which has since been pulled down as of this morning. The site went live late last night, taking pre-orders for Apple's iPhone 5s and iPhone 5c. It has long been speculated that a deal between the tech giant and the world's largest mobile phone carrier would get done.

Apple already has deals with the other major Chinese carriers, including China Telecom (CHA), and China Unicom (CHU).

Last week, China's official state news agency, Xinhua, reported that China would start commercial use of the 4G network and services starting Dec. 18, bringing high-speed Internet access, data and advanced smartphones to the world's most populous country. China Mobile had 740 million subscribers at the end of June, with 137.9 million of them being 3G users, the demographic Apple is targeting.

The soft launch (since postponed) took place in Suzhou, one of China's most populous and richest cities. With services starting Dec. 18, just two weeks away, it makes sense that China Mobile, through its various subsidiaries, would start taking pre-orders and reservations now.

This has been a deal that's been long in the making, going back to when Apple first launched the iPhone in 2007. There was speculation then that a deal between Apple and China Mobile would happen. There was no official deal between the two behemoths, though there are iPhones already running on China Mobile's network. It's thought that there could be 10 million, if not more, iPhones already on China Mobile's network.

In August, speculation really began to ramp up that a deal was near. China Mobile Chairman Xi Guohua said he was optimistic about a deal between the two companies, noting both parties were "actively negotiating." He noted that there are some "commercial and technology issues that need time to resolve." This official 4G network launch appears to be one of the "issues" he was talking about.

China has become an increasingly important market for Apple. During the company's most recent earnings call, CEO Timothy D. Cook said Apple had a "pretty good quarter" in China, but that there's scope to do more. During the quarter, Apple's revenue in Greater China was $5.73 billion, up 24% sequentially.

With China Mobile being the last big holdout for Apple, it will allow Apple to really start to reap the benefits of all the headway it has made in China, including apologizing earlier this year for a warranty issue.

The eventual launch (now just days away) of the iPhone 5s and iPhone 5c has prompted analysts to get giddy (when aren't they?) and salivate over the potential number of iPhone units sold to China Mobile customers.

UBS analyst Steven Milunovich upped his rating to "buy," raising his price target to $650, noting that the perception is starting to change on Apple, with the eventual China Mobile deal being among the keys.

"We are upgrading Apple to Buy with a price target of $650 and have modestly increased our F14 estimate in anticipation of China Mobile," Milunovich wrote in his note. He notes that with gross margins starting to trend upward, or at least remain flat, along with the China Mobile and NTT DoCoMo (DCM) deal, the hire of Angela Ah rents and several new products, optimism will surround Apple in 2014, as institutions begin to pile into the name.

Milunovich noted that Asia is providing around 40% of Apple's operating profit, so a deal with China Mobile is exceptionally important. In his note, he added 5 million iPhones coming from China Mobile for fiscal 2014, which raised his earnings estimates to $44.40 per share, up from $43.63.

Both China Telecom and China Unicom increased the monthly fee for the iPhone 5s to $60 per month, Milunovich noted, which means these carriers are probably susbdizing the cost of the iPhone at about 40% to 50%. If China Mobile was to increase its subsidy budget by about 20% to $5.2 billion in 2014, Apple could account for 20% to 30% of the subsidy budget.

In recent days, we've begun to see increased optimism already in Apple shares, beginning in mid-November, as the rumor mill went white-hot on a Apple, China Mobile tie-up.

AAPL ChartAAPL data by YCharts

Given the news that orders are now being taken at China Mobile, Apple shareholders are likely to start benefiting again, as Apple moves past 2013, and into 2014, with the launch of many more iDevices to come.

--Written by Chris Ciaccia in New York

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