Apple and China Mobile: Together at Last
Dec 23rd 2013 9:05PM
Updated Dec 23rd 2013 9:06PM
After years of rumors, Apple and Chinese telecom giant China Mobile have finally inked their long-awaited deal.
According to a press release from Apple, we now have official word that China Mobile will begin selling Apple's uber popular iPhones over its 4G and 3G networks on January 17.
This is, of course, of huge deal for all parties involved. So keeping that in mind, let's take a look at what investors need to know regarding Apple's and China Mobile's mega deal.
What the deal means for Apple
It's hard to say who got the better end of the deal here, Apple or China Mobile. However, one thing is certainly clear, Apple should do quite well as a result of this deal.
Handicapping the impact China Mobile could have on Apple's financials has been a matter of grand speculation lately, and sell-side analysts have been busy attempting to peg just how material this is to Apple as an investment.
Scanning the available information, it seems analysts are predicting the China Mobile deal could produce somewhere between 10 million and 20 million incremental iPhones sales during 2014, with the highest estimate appearing to be 23 million. So looking at what we can reasonably call a "consensus range" between 10 million-20 million iPhone sales, how massive a financial driver could this deal be?
Apple tallied an average selling price for its iPhones of $577 in its most recent quarterly report, the only report that has data containing iPhone 5s and 5c sales data. And while this ASP figure could change for a number of reasons in the coming quarters, applying last quarter's iPhone ASP figure to the aforementioned sales range would yield between $5.8 billion and $11.5 billion in new sales in its fiscal year 2014. Benchmarked against Apple's FY '13 total revenue figures, the above range implies 4%-7% sales growth.
This may sound underwhelming, but given Apple's truly massive revenue base, generating this kind of sales growth by simply striking one new deal is worth cheering for Apple shareholders.
What the deal means for China Mobile
China Mobile clearly has big plans for Apple's iPhone and its own recently launched 4G network.
China Mobile's Chairman Xi Guohua said he expects the telecom giant to sell between 190 million and 220 million mobile devices (smartphones, data cards, etc.) in 2014, up from 155 million this year. All in all, he sees 4G devices representing half of this target sales figure.
And that would certainly be a win for China Mobile, although it's much harder to get an exact revenue or profit impact estimate because of the wide breadth of China Mobile's product portfolio.
It's beyond dispute that 4G enabled devices with high-quality screens like Apple's iPhone encourage users to consume more content on their mobile devices. These high-end smartphones allow telecom providers like China Mobile to in turn push their users toward more lucrative contracts that charge for data use. This surge in data usage that comes with premium smartphones should certainly translate into more revenue from its users.
Just in time deal
Both Apple and China Mobile were under pressure to announce their deal before the beginning of the Chinese New Year, which typically results in a surge in consumer spending. With the favorable timing of the deal, it isn't unfair to expect that Apple could potentially see a significant spike as a result of China Mobile in the short term.
However, more broadly, this deal has been hemmed and hawed about for years. And now that it's finally arrived, investors in both names should be cheering what's clearly a very positive end to 2013 for Apple and China Mobile.
A better way to play the smartphone boom
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."
The article Apple and China Mobile: Together at Last originally appeared on Fool.com.Fool contributor Andrew Tonner owns shares of Apple. Follow Andrew and all his writing on Twitter at @AndrewTonner. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.