Is China Hanging Up on Smartphones?

The slowing Chinese economy is apparently eating into the country's appetite for shiny new cellphones.

China Unicom (NYSE: CHU  ) -- one of the country's largest wireless carriers -- reported that it added 2.726 million net 3G subscribers last month. That may seem like a big number, but it's a surprising retreat from the 2.918 million net additions that it reported for April.

Rivals China Mobile (NYSE: CHL  ) and China Telecom (NYSE: CHA  ) reported sequential growth in net additions for the month, but the market isn't convinced. All three stocks were trading lower this afternoon, though China Unicom's 5% slide naturally led the way down.

Yes, China's economy slowed last year. The projections are for the country's once heady 10% growth rate to continue to decelerate this year. China Unicom's report is leading some to wonder if the slower growth is also holding back demand for 3G phones and the pricy data plans that accompany them.

The problematic numbers at China Unicom are a surprise. Apple (Nasdaq: AAPL  ) was singing the praises of its iPhone business in China earlier this month, and China Unicom is an iPhone partner.

Search star Baidu (Nasdaq: BIDU  ) also recently announced its Baidu Yi smartphone initiative, presumably because the dot-com darling that commands nearly 80% of China's search market wants some more skin when it comes to mobile search.

Investors shouldn't worry. A single bad month isn't a trend, especially when the downtrend isn't being confirmed by its rivals. On an absolute basis, net additions of more than 2.7 million for China Unicom is still both healthy and incremental.

Naturally investors will be paying closer attention to the smartphone story in China now, but one bad month by one company isn't going to be enough to derail the mobile revolution.

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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of China Mobile, Baidu, and Apple. Motley Fool newsletter services have recommended buying shares of Baidu and Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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