5 Numbers To Understand the Apple-China Mobile Deal

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Happy holidays! It's Christmas and investors are showing their good cheer, as stocks opened up this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) rising 0.44% and 0.40%, respectively, at 10:15 a.m. EST. The largest weighting in the S&P 500, Apple (NASDAQ: AAPL  ) , is pulling the index higher, on the iPhone maker's Sunday announcement that it has finally struck an agreement with the world's largest telecom carrier, China Mobile (NYSE: CHL  ) .

Shares of Apple were up 3.1% at 10:15 a.m. EST on the announcement of a multiyear agreement that will make the iPhone 5S and 5C available on China Mobile's 3G and 4G networks. Equally important, China Mobile's retail distribution network will carry both handsets. The agreement is certainly a positive development for Apple, but does it warrant today's share price pop? After all, the agreement was heavily anticipated; On Dec. 3, the news that a China Mobile subsidiary website was accepting iPhone registrations sent the shares up 2.7%.

760 million...
is the current number of China Mobile customers, making it far and away the largest mobile network in the world. That's a huge number on the face of it -- it's nearly 2.5 times the U.S. population, after all -- which has fueled dreams of moonshot-type growth for some Apple investors. That's understandable, but the truth of the matter is that it's not relevant to this agreement. The next number provides some context to help understand why.

was China's gross domestic product per capita in 2012 (for reference, U.S. GDP was $51,704.) When the iPhone 5S and 5S were launched in September, the retail price in China for the lower-end 5C was set at $733, or roughly one month's domestic product! (Furthermore, the GDP per figure above is adjusted for the relative cost of living; strictly on the basis of exchange rates, the number falls to $6,071.) Those numbers ought to make it clear that China Mobile's entire customer base is not Apple's potential market for the iPhone, which is a premium product at a premium price. (Note, however, that the companies have not yet disclosed the pricing of the iPhones for China Mobile.)

is the number of 4G handsets Citigroup expects will launch in the first half of 2014, most of which will sell for roughly $165 -- well below the price of even the lower-end iPhone 5C.

100 million...
is the number of Chinese people who can afford a premium product such as an iPhone, Benedict Evans of Enders Analysis told Bloomberg News.

45 million...
is the number of unlocked iPhones being used on China Mobile's networks, according to the network operator, so some demand for Apple handsets has already been met.

Make no mistake about, this deal is wonderful news for Apple and its shareholders, but it may not meet the expectations that some investors have for the agreement.

Read/Post Comments (10) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2013, at 10:23 AM, interdyne wrote:

    " When the iPhone 5S and 5S were launched in September..."

    I think you mean 5s and 5c unless you really want to emphasize that the iPhne 5s launched in September.

  • Report this Comment On December 23, 2013, at 10:30 AM, spencerdr wrote:

    ...and it may exceed the expectations that other investors have for this agreement. In fact, you don't know, and you're not contributing any knowledge that's relevant. China has more millionaires than the US or Russia. Do you know how many Chinese have per-capita INCOMES of the US average OR HIGHER? How about some useful research and analysis, not just words with only a catchy headline.

  • Report this Comment On December 23, 2013, at 10:42 AM, Jennabeth1972 wrote:

    Spencerdr - couldn't agree more with your sentiments about this post. A few interesting facts (all of which I got from Google in 10 seconds) - but no real investment insights. We'll see how the rest of the day plays out. I do think your question about how many Chinese per-capita incomes mirror an average US capita income. I did read elsewhere that China has a much bigger thirst for high end products as far as total numbers go. Alex - if you're reading this - suggesting that 100 million customers is the number of customers who can afford an iPhone in China means that's all the iPhones that could possibly be sold is a bit off base. Do you know how many people in the US really can't afford iPhones and buy them anyway? Most. Just do a survey with some teenagers you know. The real insights are coming from people in Asia on other websites who are predicting humungous sales of the iPhone. And all those customers who unlocked iPhones because they had no other choice will now upgrade to a new iPhone and be legit. This is a no-brainer. Stock is going to soar.

  • Report this Comment On December 23, 2013, at 10:47 AM, larryw101 wrote:

    This is just another example of a Motley Fool clown who decides he wants to write an article to bash Apple.

    How can anyone find fault with this China Mobile deal? It's a whole new revenue stream for Apple.

    But first and foremost, this author has zero credentials in terms of any financial experience. He highlights Yoga in his profile but list no occupation.

    Where does Motley find these bozo writers at anyway?

    Motley's reputation is at an all time low and this article is a perfect example as to why.

  • Report this Comment On December 23, 2013, at 11:11 AM, antoquin wrote:

    Most that write on these financial media sites have little or no knowledge of the subject matter. Invest in good companies according to your own research. Sit back and watch your investments grow with time and patience.

  • Report this Comment On December 23, 2013, at 11:20 AM, WilliamaA wrote:

    Many thanks Alex for providing some very useful context to the Apple deal with China. I don't know why the others are so critical. One doesn't expect an exhaustively complete analysis every time an analyst, from Fool or from some other commentator, puts pen to paper. If you are looking for original research, subscribe to the Wall Street Transcript or buy expensive research reports from the brokers. For me it was an extremely useful use for the two minutes it cost me to read it.

  • Report this Comment On December 23, 2013, at 11:33 AM, larryw101 wrote:

    To WilliamA:

    This author has no understanding of Apple's China Mobile whatsoever. To your point about subscribing to the Wall Street Journal. I guess you're right. As the saying goes, you get what you pay for.

    Motley Fool hires kids out of school to write these types of article to bait readers into reading them. When a reader clicks on the "baited" story title, the writers gets their penny or so commission and Motley get to show advertisers how many readers they attract. It's all for numbers, nothing of quality investment advice.

    The point is that the this is not quality journalism. In fact, most of the time it's garbage.

    Have you ever seen these kids on camera? It's truly comical.

    Defend them if you will, but if you can't see through the fact that these authors are clueless then you deserve to have your time wasted.

    Moyley Fool = Quality Journalism is an oxymoron.

  • Report this Comment On December 23, 2013, at 11:36 AM, melegross wrote:

    There are several things that need to be understood here, which the author hasn't gotten right. While most of his numbers aren't too far off, there is a lack of understanding of the Chinese market.

    On number that wrong is the existing ate of 100 million people who could afford the phones. Most other estimates I've seen give that number as 150 million. But that may just be quibbling.

    A bigger mistake if the lack if understanding of the demand for this phones. He correctly gives the estimate of 45 million iPhones being used on China mobile,s network. But he doesn't epseem to know that none of those phones can use 4G or even 3 G. Customers using them are limited to 2G/EDGE.

    If 45 million people are willing to give up 3/4g to get the phone, how many will be interested when they can get 3/4G on the new ones? I would imagine that a lot of these people will want that when their contracts are up (yes, China mobile does subsidize phones). Then there are those who were willing to wait for 3/4G.

    This is a more positive development than the author is willing to admit.

    We should look to what happened in October, shortly after the new phones became available on the two, much smaller networks there. Apple shot from the number five smartphone, to number two, flatlining Samsung's growth, and causing the other major smartphone producers into negative growth, except for Lenovo, whose growth is a third of Apple's. Apple grew to over a 15% marketshare from a bit over 5%. Considering that those two networks control no more than 39% of the overall cell marketshare, that's pretty good!

    Also, in China, Apple products are considered to be status symbols.

    The only down thing to this is that phone sales elsewhere that end up in the Chinese market will now be bought directly in China. We'll have to see the differential between that and what we've been seeing in sales everywhere else to know just how many more phones Apple will sell as a result of this deal.

  • Report this Comment On December 23, 2013, at 11:37 AM, melegross wrote:

    Oh lord. All of my typos came through. So ehow, the site didn't get the corrections. Sorry for that.

  • Report this Comment On December 23, 2013, at 5:48 PM, merican wrote:

    Apple is one of our country's most competitive companies in the global market. Why so many in the media constantly denigrate it is really hard to fathom. I agree with all the naivete in this article already stated by others and would like to add one of my own. The topper for me is the 100M market that is reduced in half by the 45M users already owning Iphones. The writer must not be aware that these users paid a ton to own an Apple phone that operates on a 2G network. You think these are not candidates for a 4G Apple phone. Wow.

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