Apple Inc. (NASDAQ:AAPL)’s iPhone sales are giving China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941) a huge boost in 3G and 4G mobile subscribers, allowing it to pull away from its two major competitors, China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) (HKG:0762) and China Telecom Corporation Limited (ADR) (NYSE:CHA) (HKG:0728). China Mobile has added more new 3G subscriptions than the other two for most of the last year, but there is a clear spike in net adds and upgrades that can only be explained by iPhone sales.
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China now has a base of 1.24 billion mobile subscriptions and 435 million 3G subscribers, of which 206 million are China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941) customers, up 14.2 million in January. Although China Mobile doesn’t release 4G information, Stifel analyst Aaron Rakers thinks they are lumped in with the 3G data. China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) (HKG:0762) had 127 million 3G subscribers and China Telecom Corporation Limited (ADR) (NYSE:CHA) (HKG:0728) had about 103 million.
Not all of the increase necessarily due to iPhone sales
Since this is bulk data, not all of the new 3G adds and upgrades are iPhone sales, and China Mobile’s 3G sales were up in December (the deal between Apple Inc. (NASDAQ:AAPL) and China Mobile didn’t go into effect until January 17), but December numbers were still in line with 2013’s better months, while January sales broke new ground. Equally, China Mobile is proving its worth right out of the gates as a partner, providing the strong sales growth that Apple is looking for in China.
“While we believe investors should consider the positive effect of Chinese New Year in January and Apple Inc. (NASDAQ:AAPL)’s share of upgrades is unknown, we would view this data as a modest positive data point for Apple during the first month of iPhone availability at China Mobile,” writes Rakers.
Apple chips away at Google’s lead in China
Apple Inc. (NASDAQ:AAPL)’s share of the Chinese smartphone market is still quite small, growing from 6% to 7%, but the company’s big push has really just started. The iPhone 5 was released simultaneously in the US, Europe and China, but it failed to gain any traction at the time. Android phones, which are considerably cheaper, make up 90% of the Chinese market, but with China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941) pushing iPhones, Apple could start to chip away at its competitors lead.
With the Chinese economy still growing at a faster clip than most developed markets, interest in smartphones in general should be on the rise, so for Apple to figure out how to grab a growing percentage of that growing market should give investors plenty of reason to be optimistic. Rakers rates Apple a Buy with a $650 price target and 13x PE multiple.