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Does the C in iPhone 5C Stand for Cheap, Cutthroat, or China?

By Rick Munarriz - Sep 9, 2013 at 4:53PM

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Apple has a lot riding on this week's new iPhones.

Apple's (AAPL -0.14%) going to peel back the curtain on its new iPhones tomorrow, and a few hours later it has another presser in Beijing.

The market has been speculating that China Mobile (CHL) will begin offering the new, cheaper iPhone for weeks. Having a separate press event in China all but confirms that something big is in the works as Apple tries to regain its mojo in Asia. Then we had reports surface late last week that iPhone assembler Foxconn had shipments going out to China Mobile.

There was also an inadvertent leak by China Mobile rival China Telecom (CHA) on Thursday, posting a preorder link on Sina Weibo, claiming that the iPhone 5C -- the reportedly cheaper smartphone that Apple will be unveiling this week to address the entry-level market -- will be available first in China.

This could be huge. 

China Mobile had nearly 745 million customers as of the end of July. Sure, a lot of them are not smartphone customers, but that only speaks to the upside that's possible as China's migration to web-savvy phones continues.

Unlike China Telecom, China Mobile doesn't currently offer the iPhone. Between hardware compatibility issues and Apple's hefty prices that typically warrant some form of carrier subsidization, China Mobile and Apple have yet to hook up. Well, that is likely to change this week.

Naturally, the market won't just applaud the deal itself. It has to be on terms that are favorable to both companies. The real challenge to the iPhone 5C -- unlike the iPhone 5S that will build on last year's iPhone 5 -- is how cheap Apple can price the device without taking a bloodbath on the margin front.

One of the reasons Apple continues to trade well below last year's peak is that profitability and margins have been going the wrong way in recent quarters. It's unlikely that the iPhone 5C will command the high margins that Apple investors have grown accustomed to in the past. Apple's goal here is to reach the masses worldwide with the cheaper device, especially in overseas markets where carriers aren't willing to slash hardware prices by hundreds because they know that they stand to collect thousands in the life of the contract.

Apple has lost smartphone market share over the past year, and it's humble enough to know what it has to do to change that.

So, yes, China Mobile is likely to officially join the iPhone family at one of this week's media events. The key for investors will be how much it's giving up now to gain in the future.

 

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. It also owns shares of 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.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$165.35 (-0.14%) $0.23
China Mobile Limited Stock Quote
China Mobile Limited
CHL
China Telecom Corporation Limited Stock Quote
China Telecom Corporation Limited
CHA

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