Samsung recently took the top spot for smartphone market share in China, leaving Apple (NASDAQ:AAPL) behind in the No. 3 spot. Apple may not be king in the largest smartphone market in the world, but its profits, and demand, speak for themselves in the country.
Who's who in Chinese smartphones
Samsung's whopping 30 million smartphone sales in China last year deserves a tip of the hat. The company surged from 10.9 million sales in 2011 to 300% increase in 2012. But despite the huge sales gain, the company took only an additional 5.3% of the smartphone market share. Granted, that was enough to stay ahead of Apple, which currently holds 11%. Here's the breakdown of smartphone market share by sales.
While it's obvious Chinese consumers are willing to put a Samsung device in their pockets, investors can look beyond market share to some more concrete numbers: revenues.
In 2011, Apple's sales in China were $4.08 billion. In 2012, that number increased by 67% to $6.83 billion. That's a significant increase in sales in the region, considering its growth in North and South America was 15% and 13% in Europe. But one of the most important facts to remember is that Apple isn't even on China's largest mobile network, China Mobile (NYSE:CHL). Samsung and Lenovo, who lead in smartphone sales market share, both have deals to sell phones on China Mobile. Meanwhile, Apple has managed to claim the third spot without any deal with the company -- but it's coming.
Apple wants its iPhone available to China Mobile's 700 million customers, and China Mobile wants to officially offer the coveted and social status-raising iPhone. As China Mobile's 3G network grows, both companies cannot wait much longer to strike a deal. At the 2012 China Mobile Worldwide Developer Conference, the company's president said about working a deal with Apple: "Technology is not a problem, [it's] mainly about business model and benefit-sharing issues." It's high time Apple and China Mobile worked out some sort of deal.
As of this time last year, about 15 million China Mobile customers used their unlocked iPhones on the company's 2G network. With millions of Chinese consumers already unofficially using new iPhones on China Mobile's network, it shows how much demand there is for a China Mobile iPhone.
Morgan Stanley analyst Katy Huberty said last month that Apple could add $2.4 billion in iPhone revenue and triple its customer base in China if the company debuted an iPhone "Mini". No one knows whether or not Apple will release a cheaper iPhone in China, but we do know that Apple won't let an opportunity like China Mobile pass by. With Apple focusing much of its attention on the country, a deal with China Mobile is the next logical step to building its presence in China.
Taking it slow
Some investors may not like the pace Apple's moving at with China Mobile, but the Apple is content to let some market share slip, while trying to make deals that will bring in the biggest profits. Investors should pay close attention to Apple's growth in the country, as well as iPhone demand from Chinese consumers. Apple is a status symbol in the country, and if it can tap into that with China Mobile, then it could bring huge rewards for the company -- and patient investors.
CEO Tim Cook's frequent visits to China, and his meetings with China Mobile, should be an encouraging sign that Apple's pursuit of the country is just getting started. Many Western markets are reaching high-end smartphone saturation, but China still has a long way to go. Even if Apple doesn't release a cheaper iPhone for the Chinese masses, a deal with China Mobile may be enough to boost profits even higher and take a larger piece of the the market share.