Analyst: Apple’s China Mobile Launch a ‘Big Opportunity,’ Not ‘Muted’


BMO Capital Markets analyst Keith Bachman recently offered his opinion on the potential impact of Apple’s (NASDAQ:AAPL) partnership with China Mobile (NYSE:CHL) following the iPhone’s official launch on the carrier’s network on Friday. In a research note obtained by Barron’s, the analyst noted that the information he has heard about China Mobile’s iPhone preorders was mostly positive. Bachman reiterated an “Outperform” rating and a $585 price target on Apple shares.

The iPhone 5S and iPhone 5C have been available for pre-registration through China Mobile’s website since December 25. As noted by Bachman, China Mobile has stated that preorders for the iPhone have “exceeded 1 million units.” Although he believes that this is “relatively positive” news, he pointed out that most of the preorder sales from the China Mobile launch will not likely show up in Apple’s December quarter earnings.

“[I]t appears that iPhone sales are being fulfilled by China Mobile’s 3,000 retail outlets, at least initially,” wrote Bachman in a note seen by Barron’s. “iPhones sold directly by Apple are recognized on a ship-in basis, or only upon customer receipt of the product, while iPhones sold to retail partners are recognized on a ship-out basis. Therefore, we believe that some amount of iPhone sales to China Mobile will be captured in the December quarter, but most in the March quarter.”

While Bachman believes that China Mobile could add as many as 15 million units to Apple’s total sales in calendar 2014, he sees even greater opportunities beyond this year due to the massive size of China Mobile’s total user base. China Mobile is the world’s largest carrier with over 763 million subscribers.

“We believe China Mobile remains a big opportunity. China Mobile has about 181 million 3G subscribers (as of November 2013) and has added about 93 million 3G subscribers from the beginning of CY13,” wrote Bachman per Barron’s. “In our recent meeting with China Mobile, management commented that as many as 50 million iPhones were currently on China Mobile’s network, which remains a huge opportunity for potential upgrades.”

Although the iPhone only recently made its official debut on China Mobile’s network, it is estimated that millions of unlocked iPhones were already being used on the carrier’s 2G and 2.5G networks. As noted by Bachman, many of these users will likely want to upgrade to a 3G or 4G compatible iPhone. The analyst also pointed out that iPhone price cuts initiated by rival carriers China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) will also help fuel Apple’s overall sales in China.

Finally, Bachman dismissed the media reports that called the iPhone launch a “muted” affair due to a lack of crowds. “iPhone availability is currently at China Mobile outlets, not at a very limited number of Apple retail stores,” noted Bachman per Barron’s. “Also, reservations were required to pick up the iPhone. So by suggesting that no lines mean weak demand, we think does not capture the different product rollout strategies.”

Here’s how Apple traded on Friday.


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