Big Numbers in China Mean Big Opportunity for Apple Inc.

Think Apple's opportunities for growth in smartphone sales are over? Think again.

Jan 22, 2014 at 10:15AM

Although the majority of wireless subscribers in the U.S. are already using smartphones, that's not the case in the world's most populous country. In fact, not even half of China's wireless subscribers are using smartphones. Even more, the number of 3G subscribers in the country is growing at a roaring pace. What does this spell out for Apple (NASDAQ:AAPL)? Opportunity -- especially with a China Mobile deal finally in the bag.

The opportunity
Verizon says that 70% of its subscribers now have smartphones. That's up from 67% at the end of Q3 -- not bad. The large concentration of smartphones on the network bodes well for the success of smartphones in the U.S. as a whole. But it's far from a representation of the global picture.

In China, just 34% of mobile subscribers use smartphones. On the flip side, that's 66% of China's wireless subscribers not using smartphones, or 813 million people -- a massive opportunity. And thankfully for Apple, China's 3G subscribers are growing rapidly. In 2013, smartphone sales were up 79% in the country. Deriving more than 50% of its revenue from sales of its iPhone, Apple is poised to benefit from this trend.


iPhone 5c.

Big numbers growing at meaningful growth rates mean big opportunities. Even if growth of China's 3G subscribers drops to 50% in 2014, that would mean an additional 208 million 3G subscribers. Claiming just a fraction of these new smartphone sales to first-time 3G users would be meaningful for Apple.

Of course Apple's new arrangement with the world's largest carrier should certainly help. China Mobile's year-end 3G subscribers are up 118% from 2012. Even more, its reported 191.6 3G million subscribers is up more than 10 million in just one month. And the growth for China Mobile won't be stopping anytime soon; it has 575.5 million subscribers that haven't yet tapped into 3G.

It's tough to argue against growth for Apple's iPhone segment with the opportunity in China in sight. Indeed, analysts are fairly bullish for the company's prospects in the country. On average, analysts expect about 19 million incremental iPhone sales from China Mobile alone in 2014.

Cantor Fitzgerald analyst Brian White pegs his estimate for iPhone sales from the China Mobile deal in 2014 at 22 million. By his calculations, that could add about $4.00 to Apple's earnings per share in 2014. An additional $4.00 to Apple's trailing-12-month EPS would boost the important metric by about 10% -- not bad for a company that trades at just 14 times earnings.

Whether Apple hits 22 million incremental iPhone sales in China in calendar 2014 or not, it's the 10,000-foot view that looks enticing: Fast growth of the world's largest smartphone market means plenty of opportunity for Apple over the long haul.

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

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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