Will Apple and China Mobile Partner Up?
Apple (NASDAQ:AAPL) chief executive Tim Cook’s meeting this week with the chairman of China Mobile (NYSE:CHL) has made much noise due to the possibility of a partnership between the two companies. While the relationship will be symbiotic as far as growth is concerned, according to Epoch analyst David Pearl, the iPhone maker was definitely the one more in need. According to a statement from China Mobile, Cook and chairman Xi Guohua discussed “matters of cooperation.”
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If Apple doesn’t land a deal with the world largest carrier, it stands to lose critical share of the Chinese market to competitors, Pearl said on CNBC’s “Closing Bell”. And that, in turn, will severely affect the company’s future growth prospects. “To really grow they’ll need the dominant carrier, which is China Mobile,” Pearl said. “And really China will be their biggest market in a few years and they need this outlet to get there.”
A deal with the carrier will give Apple access to a 700 million-strong subscriber base and help it arrest the slide in its share of the world’s biggest smartphone market. Apple was placed sixth on the list of top smartphone sellers in the country in the September-ending quarter, although it already has partnerships with China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA).
“They are better off getting more volume,” Pearl said. “Remember once you even sell a low-end iPhone, that customer is going to buy apps and they’ll be a customer probably for the rest of their life, so you’re really motivated to keep market share and gain market share.”
The analyst added that a low-end iPhone targeted at emerging markets, which is plugging the rumor mill these days, was also increasingly turning into a necessity because Apple’s stock was already being punished for the company’s weakening margins. Market share was now more critical than margins in the battle against Google (NASDAQ:GOOG) Android, Pearl said.
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“Today’s customers of even low-end iPhone, if they make a cheaper version, will eventually trade up and buy the premium products and then they’re in the Apple ecosystem forever,” he said. “So they’re really worried about market share because once you go to Android, you may not come back to Apple.”