Analysts Weigh In On China Mobile’s iPhone Numbers



China Mobile (NYSE:CHL) chief executive Li Yue told The Wall Street Journal on Thursday that the carrier had added approximately 1 million new iPhone users during the month of February. Soon after China Mobile made the announcement, several analysts offered their opinions on what those sales numbers meant for Apple (NASDAQ:AAPL).

Piper Jaffray analyst Gene Munster, who maintains an “Overweight” rating and a $640 price target on Apple shares, had mixed feelings about China Mobile’s February iPhone sales numbers. In an interview on CNBC, the Piper Jaffray analyst noted that the 1 million units figure was “spot on” with his estimate of 3 million units in the March quarter, and he observed that “investors need to be patient about China Mobile.” On the other hand, Munster also called China Mobile’s February sales numbers “a disappointment” and told CNBC that “it would be nice if there was more traction.”

Cowen and Company analyst Timothy Arcuri was also cautiously optimistic. In a note to investors obtained by Barron’s, Arcuri confirmed that China Mobile’s February iPhone sales numbers were in line with his own expectations, but that it was also below consensus expectations. “[W]e think March quarter consensus is currently closer to 5MM,” wrote Arcuri.

However, Arcuri cited several factors behind China Mobile’s limited iPhone sales in February. “1) China Mobile’s 4G network is in the early stages of a phased roll-out and was available in only a select number of major cities at launch,” noted Arcuri. “2) iPhone’s ~75% implied market share of China Mobile’s February LTE connections is in line with, and in some cases, significantly higher than, other major operators with highly correlated iPhone sales and LTE connection growth {e.g. DoCoMo (NYSE:DCM), Telstra, AT&T (NYSE:T)}, 3) China Mobile management reiterated C14 guidance for ~100MM LTE device sales and an LTE installed base of ~50MM.”

The Cowen and Company analyst also predicted that “AAPL can double its overall market share in China from ~5% in C13 to >10% by YE2014.” Arcuri is not the only industry watcher who thinks Apple will double its market share in 2014 — market research firm IDC made a similar prediction last year. Arcuri has an “Outperform” rating on Apple shares.

In a research note provided by Barron’s, Arcuri outlined three reasons why he believes China Mobile represents an opportunity for 20 million-plus units for Apple. “1) iPhone taking a dominant (~30-40%) share of an estimated 10% 4G upgrades from CHL’s ~215MM 3G TD-SCDMA installed base; 2) a ~40-50% upgrade rate of CHL’s unlocked iPhone installed base (est. @ 35MM+) as these devices still function only on its 2G GSM network or WiFi; and 3) the potential for aggressive tariffs to help catalyze overall 4G adoption and/or upgrades,” wrote Arcuri.

Finally, Credit Suisse analyst Kulbinder Garcha believes that China Mobile’s iPhone sales numbers are in line with his “Neutral” rating and $500 price target on Apple shares. “These initial sales are in-line with our view and point to limited adoption at China Mobile, which we believe is primarily due to the high cost of the device and quality issues with its LTE network,” wrote Garcha in a note seen by Barron’s. “While the carrier’s large subscriber base presents a longer-term opportunity for Apple, we expect iPhone adoption to be gradual given the above factors.” Garcha also noted that China Mobile’s iPhone sales numbers affirmed his overall view that the majority of future smartphone market growth will occur in the low-end segment of the market.

Here’s how Apple has traded over the past five sessions.


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