Apple Inc. (AAPL): Racking Up The China Mobile Estimates

Updated on

With preorders of Apple Inc. (NASDAQ:AAPL)’s iPhones expected to begin this week yet on China Mobile, more and more analysts are weighing in on just how many more phones the company could sell by adding the world’s largest carrier. Some have estimated that as many as 25 million more iPhones would be sold. Bernstein analysts, however, aren’t setting their estimates quite as high.

China Mobile, Apple launch expected Dec. 18

Bernstein analyst Toni Sacconaghi, Jr.’s team issued a joint report with Bernstein’s Asia-Pacific telecom analyst Chris Lane. They note that although Apple Inc. (NASDAQ:AAPL)’s iPhone is still offered on fewer than half of the world’s carriers, China Mobile is unique because of how much larger it is compared to other mobile carriers. The company has 759 million subscribers.

The Bernstein team is estimating that the addition of China Mobile Ltd. (NYSE:CHL) (HKG:941) could add an incremental 15 million iPhones to Apple Inc. (NASDAQ:AAPL)’s sales during the first full launch of the handsets on the world’s largest carrier. They based this estimate on China Mobile selling an incremental 10 million postpaid iPhones and 5 million prepaid iPhones.

Postpaid versus prepaid for Apple and China Mobile

The analysts assume that the carrier’s rollout of 4G is “relatively immediate” across the major cities along the eastern side of China and believe that the postpaid price of the iPhone will be competitive with those of other carriers in China. They see postpaid phones as being China Mobile’s biggest opportunity, estimating that of the company’s current subscriber base, approximately 100 million of them are postpaid.

They do note that estimating the number of prepaid subscribers who might buy Apple Inc. (NASDAQ:AAPL)’s iPhone is more difficult than estimating postpaid customers. They believe their 5 million estimate for prepaid customers could end up being conservative because China Mobile is also rolling out 4G at the same time as it will probably launch the iPhone. Before the expected launch on China Mobile, the iPhone can only used in 2.5G mode on the carrier’s network. However, after the 4G rollout, the new iPhones will be able to run on both 3G and 4G on China Mobile. This could impact the number of prepaid customers who end up buying iPhones.

Can Chinese consumers afford Apple’s iPhone?

The analysts also took a look at China’s demographics to see whether their 15 million iPhone estimate for China Mobile could really happen. They said demographics suggest that approximately 10% of China’s mobile phone owners can afford a high-end device. This would be about 120 million subscribers or approximately 60 million new high-end phone purchases every year.

They estimated that if Apple Inc. (NASDAQ:AAPL) has a 60% share of the high-end market, which is about the company’s share in some other parts of the world, this would mean the purchase of 36 million phones every year. The Bernstein team notes that this is close to their estimated 23 million iPhones sold this year plus 15 million from China Mobile, so they believe that once again, their 15 million iPhones from China Mobile looks realistic from that perspective.

What does China Mobile get from Apple?

Some have questioned whether it might be possible that China Mobile Ltd. (NYSE:CHL) (HKG:941) will receive a lower price per phone. The Bernstein team admits that it is difficult to know this for sure, but they don’t think China Mobile will pay less. However, they suggest that the carrier may have been able to secure other concessions from Apple Inc. (NASDAQ:AAPL).

Among the possibilities they name are more control over marketing ability, message or retail price it charges to customers. It also may have received less restrictive commitments to volume, if any commitment at all.

How many subscribers will switch to China Mobile?

Another question they consider is just how many mobile subscribers will switch from one of China’s other carriers over to China Mobile and purchase an iPhone in the process. Bernstein analysts say the carrier could see significant migration from competing carriers China Unicom and China Telecom because many postpaid contracts with the two carriers were the result of China Mobile not having 3G speeds.

However, by rolling out 4G, these subscribers could switch to China Mobile, driving an early “surge in incremental sales.” The analysts said that ultimately though, there wouldn’t be an “accompanying increase to the installed base of iPhones.” If this happens, they would expect “an initial surge in iPhones” right after they become available at China Mobile but then weaker sales moving forward.

Leave a Comment