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."
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.
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.