Apple continues to see strong growth in China as it benefits from the larger iPhone 6 and iPhone 6 Plus and expansion of 3G/ 4G service in the country. Most analysts see nothing but growing opportunities for Apple in the country, and the rapid pace of 3G/ 4G subscribers there illustrates just how large those opportunities are getting.
But what about Apple’s newer offerings like its streaming music service? Are there any opportunities there? Perhaps, but they probably pale in comparison to the iPhone opportunity in China.
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Taylor Swift complains to Apple
This week pop star Taylor Swift spoke out and threatened to pull her new album 1989 from Apple Music because the company tried to get away with not paying artists royalties for the three-month free trial. The company quickly caved to her wishes, which means Apple Music will start out losing quite a lot of money during the first three months it’s offered.
For a service that isn’t expected to move the needle much on Apple’s overall revenue, that’s certainly not good, but it also means that any loss is going to by tiny compared to the company’s total revenue. Indeed, Cantor Fitzgerald analysts Brian White and Isabel Zhu say there’s nothing to worry about. They say investors should be paying more attention to Apple’s progress in China than to Taylor Swift’s complaints.
China’s 3G/ 4G subscribership growing rapidly
All three of China’s biggest mobile carriers had reported their latest mobile subscriber numbers for May as of Monday, and the numbers are encouraging. The total number of mobile subscribers in China increased 3% in May, while the total number of 3G/ 4G subscribers in the country increased 38% year over year during the months.
According to White and Zhu, 4G subscribers on the China Mobile network were 25% of the total3G/ 4G subscribers in China during the month of May. China Mobile reported an 11% month over month increase in 4G subscribers, which brought the total to 170 million. Over all, the carrier ended May with 816.3 million total mobile subscribers, which was 63% of the country’s total wireless subscribers.
Apple benefiting in China
The Cantor Fitzgerald team thinks Apple is “better positioned than ever” in China due to its iPhone 6 and iPhone 6 Plus portfolio. The analysts believe the big money for Apple is still in China from iPhone sales and not from Apple Music. Indeed, Apple management clearly understands this as CEO Tim Cook recently said they created the gold iPhone specifically for Chinese consumers.
They note that the subscriber numbers show that 4G is expanding in China and add that the middle class in the country is rising as well. They estimate that between 15% and 20% of China’s mobile subscribers “could be candidates for a higher-end smartphone” like the iPhone within the next five years. They estimate this opportunity for Apple at between $133 billion and $178 billion. Both of these factors are helping boost Apple’s iPhone sales there and should continue to do so.
The analysts remind investors also that Apple became China’s top smartphone vendor, passing Xiaomi, during the first quarter of the year. Cantor Fitzgerald has a Buy rating and $195 per share price target on Apple. As of this writing, shares of Apple were down 0.35% to $127.16 per share.