Life After Apple’s China Mobile Deal

Apple's (NASDAQ: AAPL  ) long-awaited deal with China Mobile (NYSE: CHL  ) finally arrived -- an early Christmas gift from both of these heavyweights. China Mobile wins, as it can regain users that it has lost to competitors such as China Unicom that have been offering the iPhone for quite a while now. Apple seems to win because this broadens its reach in China -- a market that it hasn't quite taken by storm. While this deal is nice, the real question that Apple investors should be asking is, "what's next?"

A "big" iPhone is the next step
Apple already has a good chunk of the high-end handset market to itself, particularly in developed nations. Its brand is powerful, its products superb, and its customer base loyal. Unfortunately, it's tough to ignore that Apple really is missing out on a good chunk of the high-end market by not offering a larger iPhone. This isn't to say that Apple needs a 5.7-inch or 6-inch monstrosity, but a 4.5-inch or 4.7-inch device could go a long way in snatching back some of the share that it has lost at the high end to Samsung (NASDAQOTH: SSNLF  ) and perhaps LG.

While trying to predict consumer buying patterns is anything but easy, it will be very interesting to see just how a "big" iPhone -- perhaps the iPhone 6 -- could perform in the marketplace. Apple could conceivably continue to offer a 4-inch device as an "iPhone mini" and then the larger 4.5-inch or 4.7-inch device as an iPhone Air. The smaller iPhone could still go for $199 subsidized for the 16GB model, while the larger one -- which would probably come with more memory, a higher-resolution screen, and other extras -- could probably fetch $299 for the base mode. That would mean a bump in iPhone ASPs -- and share gains, to boot. Win!

But what's after that?
Eventually the high end of the smartphone market will saturate, if it hasn't already. At some point there will be no more share left to take and plenty of share to lose. Apple will need something new to drive the next leg of growth. It's difficult to use the word "innovation" here because all of Apple's products -- as incremental as some may seem -- have had plenty of innovation, whether it's on the hardware side or on the software side. A more apt description of what Apple needs is an expanded total addressable market.

Some speculate it's an iWatch, and others expect an iTV. But really, these are almost too obvious. Samsung already has a smart watch out, although it has been widely panned, and smart TVs with rather sophisticated UIs and processors are already fairly commonplace -- just ask Samsung.

Apple's going to have to revolutionize -- as bombastic as this term is -- an industry that people didn't know needed revolutionizing. What will that be, and will Apple really strike gold again? Only time will tell.

Foolish bottom line
Apple is a great company, but the real problem is that it's showing signs of maturity as the industries it operates in -- high-end handsets and tablets -- mature. This maturity will hit its competitors in the lower end a bit later than it'll hit Apple. But it will hit them. If Apple can successfully reinvent another industry or invent a completely new one, then its growth story still has more legs. If not, then Apple has matured and its shares don't look all that compelling today.

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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 26, 2013, at 2:38 PM, johnestromjr wrote:

    Apple 'seems to win'? HUH??

    Careful Ashraf, you might have to admit Apple is going to do very well with it's new association with China Mobile. Kills you, doesn't it. :)

  • Report this Comment On December 26, 2013, at 2:40 PM, johnestromjr wrote:

    "This isn't to say that Apple needs a 5.7-inch or 6-inch monstrosity, but a 4.5-inch or 4.7-inch device could go a long way in snatching back some of the share that it has lost at the high end to Samsung"

    It's coming, Ashraf. Probably in June/July. And yes, that will also be a huge boon to Apple. Same with a large[r] iPad. :)

  • Report this Comment On December 26, 2013, at 4:02 PM, gsagi wrote:

    TWO datapoints are missing: (1) the number of phablets sold and the (2) profits per headset generated. Otherwise, this article is fine.

    Cheers!

  • Report this Comment On December 26, 2013, at 11:58 PM, Rocwurst wrote:

    You seem to be implying Apple is not doing well in China. This is not the case.

    In October after the launch of the new iPhones, Apple captured 12% of the Chinese smartphone market only 5% behind the market leader Samsung according to Analysys International.

    This is despite the iPhone only being available to 35% the subscriber base in China (China Mobile has a massive 65% share of subscribers) and despite not having any cheap devices in sharp contrast to Samsung and every other manufacturer.

    Apple also captured 51.7% of the Chinese tablet market in Q3 which is quite amazing considering that was the lull before the launch of the new model iPads.

  • Report this Comment On December 27, 2013, at 12:03 AM, dwilh51183 wrote:

    the guy who wrote this story is on drugs. AAPL does have new products coming. AAPL will have 2-3 straight quarters of record earnings, AAPL will break $850 a share by march 2014.

    I JUST GET TIRED OF THESE STUPID REPORTERS WHO HAVE NOTHING BETTER THAN TO BASH THE BEST TECH COMPANY IN THE WORLD. AND HOW MUCH CASH DOES AAPL HAVE 200 BILLION? They could buy GOOG, INTC, AMZN, HPQ, CSCO, AND 5 OTHERS AND STILL HAVE PLENTY OF CASH LEFT OVER

  • Report this Comment On December 27, 2013, at 11:21 AM, ss06470 wrote:

    The reporter is totally ignorant. Samsung and Sony both have internet access on their high end TVs but they are awful for surfing. This is bewildering since a high end TV with easy surfing is what everyone wants, and it shouldn't be hard to do. I can connect my computer with an HDMI out and voila. But that is a pain. I assume Apple will come out with a TV that combines the two functions since it is waiting to happen. My Sony 950 picks up phone caller's ID. The market should be enormous for a sophisticated TV combining multiple functions (FaceTime or Skype) u tube, netflix, surfing. The beauty of Apple has always been that they make high quality products that any dummy can easily use. Apple TV should be a major hit with a market beyond any of their previous markets

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