Although financial details of the multi-year agreement have not been released, the partnership will provide Apple with direct exposure to the world's largest mobile market. The size of this market is roughly three times the combined number of U.S. consumers who subscribe to mobile plans offered by Verizon Wireless and AT&T.
From now on, Apple may find it hard to keep its traditionally high operating margin. The company may have sacrificed either margins or addressable market to make the deal happen, because it has less negotiating power than China Mobile.
Samsung may counter-attack
Clearly, this deal gives Apple more power to compete against Samsung, which saw its market share in China for the third quarter of 2013 jump to 21%, up from 14% a year earlier, according to Canalys.
To protect its market share, Samsung will have to counter Apple with aggressive discounts, or the release of a premium, innovative device.
Final Foolish takeaway
Apple's partnership with China Mobile is a huge opportunity to capture market share in the second-largest economy. The deal could easily bring more than $2 billion in additional operating profit to Apple next year.
However, investors need to assess at least two risks here. First, Apple's operating margin in China may decrease. Second, Samsung may speed up the release of new smartphones, or adopt aggressive discounts to protect its leading position in China.
Adrian Campos has no position in any stocks mentioned. 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.