A deal between China’s largest carrier and Apple (NASDAQ:AAPL) is likely to occur before the year’s end according to a recent note from UBS analysts Peter Christiansen and Steve Milunovich. Based on the expectation of a China Mobile (NYSE:CHL) deal and their “rejiggered conservative assumptions” regarding the impact of the iPhone 5C, the UBS analysts raised their price target on Apple from $500 to $560 reports StreetInsider.
The analysts also boosted their EPS estimate for fiscal 2014 to $44.65 from $42.29. Their earnings per share estimate for 2015 also increased from $45.80 to $48.45. One of the changes to their initial iPhone 5C assumptions included raising the expected cost of the iPhone 5C from $379 to $399. They also assumed a lower cost of materials which boosted the gross margin from 32 percent to 38 percent.
The analysts also foresee substantial growth for Apple from a China Mobile deal. “Based on income, we estimate the iPhone opportunity in China is at least one-third the total 3G subscriber base or over 100mn users. We expect a deal to be struck with China Mobile before year end,” wrote the UBS analysts via Barron’s.
“Our model incorporates sales of 17mn iPhones through China Mobile in F14, 70 percent 5C and 30 percent 5/5S, which adds an estimated $3.25 of EPS. Each incremental one million units would add about $0.20 per share to our estimate,” added the analysts.
China Mobile, the country’s largest carrier with over 700 million subscribers, does not currently carry the iPhone. The Greater China market accounted for 13 percent of Apple’s sales in the June quarter, down from 19 percent of Apple’s total sales in the March quarter.
A deal with China Mobile is widely considered to be an essential key for Apple if it wants to increase its share of the burgeoning Chinese smartphone market. Market research firm IDC predicts that smartphone shipments in China will exceed 460 million units by 2017 to reach a market size of $117.8 billion.
Here’s how Apple has traded so far this week.
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