China Mobile Seeks iPhone Target

Zacks

China Mobile Limited (CHL), the largest wireless carrier in the world by subscriber base, intends to sell 100 million mobile phones in 2013 with almost 80% of it in smartphones. This indicates a remarkable improvement of 25% over 2012 expected sales of 70-80 million units. A potential deal with the world’s second largest smartphone manufacturer Apple Inc. (AAPL) can be attributable for the raised guidance.

China Mobile covers more than half of the Chinese mobile market with a subscriber base of 698.51 million at the end of third quarter 2012. Nevertheless, the company’s 3G customers comprise only 11% (75.6 million) of its huge subscriber base.

Two of its closest rivals – China Unicom Limited (CHU) and ChinaTelecom Corp. (CHA) – with subscriber base of 229.49 million and 152.62 million, respectively, lags far behind but have far better 3G customer concentration than China Mobile. This provides China Mobile a significant opportunity to tap this under penetrated 3G market.

China Mobile’s biggest flaw is that it offers mobile service based on Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) technology, which is not very well supported by the handset makers includingApple Inc.’s iPhone, resulting in lower upload/download speed. However, the competitors like China Unicom and China Telecom offer their services through globally acknowledged Wide Band Code Division Multiple Access (:WCDMA) technology.     

With nearly a billion cell phone users, China Mobile offers a huge smartphone market, which is still being dominated by Google Inc.’s (GOOG) Android operating system (:OS) and Apple’s iOS comes at a distant second place. 

The company has been in talks with Apple for quite some time in order to develop a TD-SCDMA iPhone, although nothing has been finalized yet. We believe China Mobile has to strike a deal with Apple sooner rather than later to have any realistic chance of achieving its 2013 smartphone sales target. 

China Mobile currently has a Zacks #2 Rank, implying a short-term Buy rating.

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