Apple, Inc. Could Sell 16 Million China Mobile iPhones This Year

Investors waited years for Apple (NASDAQ: AAPL  ) to make a deal with the world's largest carrier, China Mobile (NYSE: CHL  ) , to sell its iPhones. When the deal was finally set in stone, analysts were ready to share their opinion on Apple's potential 2014 incremental China Mobile iPhone sales. But the estimates varied so greatly they were hardly useful. Now, however, with our first somewhat concrete figure from China Mobile on Apple iPhone sales in one month at the carrier, estimates can be made with more precision.

Based on the new data from China Mobile, it's now reasonable to assume Apple could sell 16 million China Mobile iPhones in 2014.

The initial range of estimates for Apple's China Mobile iPhone sales in 2014, assembled by Fortune's Philip Elmer-DeWitt in January ranged from 5 million to 39 million. The massive range made China Mobile Apple's wildcard catalyst.

But a new comment from China Mobile makes estimating Apple's potential easier -- and it's the first step in getting to an estimate for 16 million.

"We added 1.34 million new 4G users in February and most of them are iPhone users," China Mobile Chairman Xi Gouhua told The Wall Street Journal. "We are happy with the progress, as we are still building our 4G network and the coverage is only available in some major cities."

Assuming "most" means about 1 million of the 1.34 million new 4G users, Apple could be selling about 1 million iPhones a month. Extrapolating this number forward (and backward to January) at a steady pace, that's 12 million for 2014 -- meaningfully below the average consensus analyst estimate from the beginning of the year for 18 million.

How Apple gets to 16 million
But extrapolating 1 million monthly iPhone sales forward (and backward to January) at a steady rate isn't the most realistic scenario. Two major drivers should help iPhone sales ramp up later in the year.

First, China Mobile's 4G rollout is only getting started. Apple CFO Peter Oppenheimer said during the company's first-quarter earnings call that China Mobile's 4G network only covers 16 cities today and should cover more than 340 cities by year-end. After reiterating China Mobile's 4G rollout in the earnings call, Apple CEO Tim Cook hinted that the expansion should be a positive catalyst for Apple as the year goes on: "And so we've got quite the ramp in front of us, and we're incredibly excited."

iPhone 5c. Apple brought the iPhone 5c and 5s to China Mobile's network on Jan. 17.

Second, if Apple keeps its typical iPhone launch schedule, it will introduce a new iPhone lineup in September. After including China for the first time in the first rollout of its new iPhones last year, Apple will likely do the same this year. That leaves about three and a half months for Apple's new lineup of iPhones to record sales on China Mobile's network.

With these drivers in mind, an estimate for 16 million iPhones sold on China Mobile's network is more realistic than 12 million.

The impact?
Apple sold 153.4 million iPhones in calendar 2013. So Apple's arrangement with China Mobile could boost Apple's iPhone sales in 2014 by 10% if it results in 16 million iPhone sales in 2014. Considering that Apple's iPhone segment is the company's most profitable business, a 10% boost in iPhone sales would likely have an outsized impact on Apple's bottom line. With growth like this, Apple's current conservative valuation of just 13 times earnings may be lowballing Apple's potential.

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

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  • Report this Comment On March 23, 2014, at 4:31 PM, Renee wrote:

    16 million sounds like a lot, but if you look at all the tech analysts' predictions, this is actually at the low end (or below) most of their estimates. Most predicted 20M+ for China Mobile sales

  • Report this Comment On March 23, 2014, at 4:55 PM, deasystems wrote:

    @Renée: If you look at all the tech analysts' opinions, this is actually just about at the middle or average of those estimates. Half predicted higher than 17 million, and half predicted lower.

    Read the article cited by the author.

  • Report this Comment On March 23, 2014, at 5:12 PM, Renee wrote:

    The author only talks about one analyst. I'm talking about a bunch of them. Here's one list of them:

    http://tech.fortune.cnn.com/2014/03/20/apple-china-mobile-ip...

  • Report this Comment On March 23, 2014, at 5:49 PM, GaryDMN wrote:

    China Mobile has over 700 million users and the other two leading carriers in China have 100s of millions of users also. Chinese consumers like the iPhone and the majority say they want an iPhone. I would not be surprised to see over 50 million iPhones sold in the next year in China alone.

  • Report this Comment On March 23, 2014, at 6:13 PM, Renee wrote:

    @GaryDMN

    All analysts seem to disagree with you. If you really think that, you should buy a tonne of AAPL stock.

  • Report this Comment On March 23, 2014, at 7:19 PM, TMFDanielSparks wrote:

    @renee, good point. I did mention the "consensus analyst estimate" of 18 million in the article you cited. Anything above that seems unlikely to me. What about you?

  • Report this Comment On March 23, 2014, at 7:19 PM, imvho wrote:

    Forget about the analysts. Let's use the real numbers.

    1. China Mobile has announced that it added 1.34 million new 4G customers in February and that most of these were iPhones.

    2. If we accept your premise that "most" of 1.34 million translates to 1 million iPhones, then Apple is capturing 75% of CHL's new 4G sales.

    3. This should not be surprising. Since 4G is the best, fastest, and most expensive service CHL offers, it only stands to reason that these users would turn to the aspirational icon, Apple iPhone 5s for their 4G device of preference.

    4. CHL has announced that it expects to achieve 50 million new 4G users in 2014. Based on the 75% market share achieved to date, that comes out to more than 37 million iPhones selling to CHL 4G users in 2014. In addition to that, some CHL customers who don't have 4G yet will choose to buy iPhones as well.

    All told, it is beginning to become clear that even the most generous estimates of CHL iPhone sales are going to prove too low.

    This is not just a wave, its a tsunami.

  • Report this Comment On March 23, 2014, at 8:28 PM, imvho wrote:

    @GaryDMN

    50 million sounds about right.

    As I have shown above, Apple should be able to achieve more than 37 million iPhone sales out of CHL's published estimate of 50 million new 4G customers. CHL has over 750 million customers. If only 2% buy an iPhone that adds 15 million for a total of 52 million iPhones selling in 2014.

    @renee

    I own Apple stock, I just can't afford a tonne!

  • Report this Comment On March 24, 2014, at 9:39 AM, wazeldazel wrote:

    After that performance by Ashton Kutcher, who wouldn't want to buy AAPL?!

  • Report this Comment On March 24, 2014, at 7:51 PM, emilyrobins wrote:

    Global smartphone shipments are forecasted to reach around 1.7 billion by 2017, and the Chinese market is still virgin land for the smartphone industry providing the China Mobile to make its mark in terms of market penetration. http://j.mp/china-mobile-big-on-upside

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