Apple's (AAPL 1.27%) long-awaited deal with China Mobile (CHL) is a game-changer. Piper Jaffray analyst Gene Munster estimates that Apple could sell 17 million additional iPhones in 2014 as a result of the deal, which would represent only about 2% of China Mobile's more than 750 million mobile subscribers. Munster believes this could boost Apple's revenue by 5% in 2014. Based upon S&P Capital IQ estimates of about $185 billion, that 5% bump would equate to about $9 billion more in revenue for Apple. And Apple's earnings should receive a greater than 5% boost, since the iPhone is considered to be among Apple's highest margin products.
Some would say that Apple's stock has already moved in anticipation of this news, and judging by the muted response in Apple's share price (up only about 1%) on the day the deal with China Mobile was reported, that may in fact be the case.
But I believe this deal is worth far more than a simple 5% increase in revenue and earnings would imply. Whether Apple sells 17 million more iPhones in 2014, or even 20 million to 24 million, as research firm Cantor Fitzgerald estimates, that number is likely to increase substantially in the years ahead. Apple is in the process of doubling its store count in China, which should drive brand awareness. And in a region where many consumers love to touch and feel before they buy, Apple's highly regarded shopping experience could convert more Chinese shoppers into Apple customers. Even more importantly, as China continues to steadily build a massive middle class, rising incomes will make Apple's products more affordable to many Chinese consumers. As this occurs, I believe Apple will experience its legendary halo effect in which iPhone purchases lead to more iPad and even Mac purchases in China. That in turn, could help drive Apple's stock price significantly higher.
The Foolish bottom line
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