Apple Earnings: Does This New Data Point Suggest an iPhone Blowout?

Investors are hoping for strong iPhone sales when Apple reports earnings tomorrow. Does this spike in China Mobile's 4G customers bode well for the Mac maker?

Evan Niu
Evan Niu, CFA
Jul 21, 2014 at 3:15PM
Technology and Telecom

Tomorrow, Apple (NASDAQ:AAPL) reports its latest earnings results, and expectations are riding high heading into the report. Street analysts continue to boost price targets and unit estimates. At last count, the consensus is around 36 million iPhone units last quarter. Investors now have a fresh data point that could suggest that Apple has an iPhone blowout in store for tomorrow.

Investors waited years for Apple to partner with China Mobile (NYSE:CHL), and it's going to take some time to satisfy all that pent-up iPhone demand within the world's largest subscriber base. Launching the iPhone alongside China Mobile's brand new TD-LTE network will continue paying off for many quarters to come.

In March, China Mobile Chairman Xi Gouhua told The Wall Street Journal, "most of [the new 4G customers] are iPhone users." At the time, China Mobile had 1.3 million 4G customers. A month later, that figure had risen to 2.8 million, and CEO Li Yue confirmed that half of these were iPhone users.

China Mobile just posted a massive jump in 4G customers in June. The carrier now has nearly 14 million 4G customers, up from 8.1 million in May. If the iPhone continues to comprise about half of those customers, then there could be some upside to the iPhone figures that Apple is about to report.

Source: China Mobile.

China Mobile added 11.1 million 4G customers during the second quarter. Half of that would be 5.6 million iPhones. It's unclear if Apple can maintain 50% of new 4G customers though, and the data is limited at this point. Still, this partnership didn't exist a year ago, so all of the iPhones sold on China Mobile's network are incrementally positive for the inevitable year-over-year comparisons.

China Mobile customers have been jumping on the 4G bandwagon much faster than they did when 3G was introduced. 4G penetration of China Mobile's 790 million customers is already approaching 2%.

Source: China Mobile.

Much of the continued 4G ramp is attributable to China Mobile's ongoing 4G rollout. The company expects to have over 500,000 4G base stations up and running by the end of the year, which should translate into around 50 million 4G customers.

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Earlier this month, China's three wireless carriers announced that they had established a joint infrastructure company to facilitate faster 4G rollouts. The companies would share various assets in order to reduce capital expenditures. Interestingly, this joint venture could help China Mobile's smaller rivals catch up and eliminate China Mobile's modest headstart. The joint venture wouldn't affect Apple's June quarter's results, but the Mac maker would benefit in the medium-term from faster 4G deployment among all carriers within the Middle Kingdom.

For tomorrow, let's just hope that China Mobile's spike in 4G additions bodes well for iPhone sales.