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iPhones Coming to China Mobile: Time to Buy Apple Stock?

Eric Dutram

Apple (AAPL) certainly isn’t the glamour stock that it once was. Prices for the electronic product giant have failed to recover their all time highs, and remain stuck below the $600/share mark.

However, the second half of 2013 saw a resurgence in Apple shares. The company has added more than 36% in the past six months, and thanks to buybacks and a solid dividend yield, is once again becoming a top pick for investors. And with the latest news out of the company in a key emerging market, there may be new reason to be bullish on Apple heading into 2014.

Apple News

Apple just announced a long-awaited tie up with China’s leading mobile phone carrier, China Mobile (CHL), in order to bring iPhones to the world’s most populous country. While the terms of the deal, as well as the pricing of the phones, were not disclosed, the agreement does look to give Apple access to the world’s largest wireless carrier, which has over 760 million subscribers.

The news was viewed pretty positively by investors, as shares of Apple soared more than 3.2% following the report, on volume that was far higher than normal. ADRs of China Mobile also saw a bit of a pop, as their price rose more than 2% on higher-than-average volume.


Initial analyst commentary regarding this report is pretty positive. According to an article from CNN Money, many seem quite happy with the news of the agreement, with several suggesting that it will help to boost Apple’s revenues in the near term.

"We believe the iPhone on China Mobile essentially de-risks the Mar-14 guide with revenue guidance likely in-line to 2% higher than current Street estimates, and implies 14-20% y/y iPhone unit growth vs. the Street at ~17% for Dec-13” said Gene Munster from Piper Jaffray in the CNN article, who also went on to note that China Mobile should add 5% to Street 2014 revenue estimates as well.

It should also be noted that Apple currently has a Zacks Rank #3 (Hold), but the China Mobile deal could help to boost estimates, and bump this hot stock back up into ‘buy’ territory. Estimates have been quite mixed leading up to this news for AAPL, and this could be the catalyst to shift momentum to the bullish side.

Issues and Bottom Line

I also think that this report will help AAPL continue its short term momentum as we head into 2014. However, I am a bit concerned that this move might drag down margins overall, which could be viewed negatively by some on Wall Street, even if revenues rise.

Also, there are some worries over how many China Mobile users will pony up for the new iPhones, instead of just sticking with their ‘jailbroken’ versions that they have now. Some estimate that as many as 10 million might already have iPhone products on China Mobile networks, so it is debatable if these users will want to upgrade.

There is also an issue of the unsubsidized price of the iPhone, which will likely be far out of reach for many of China Mobile’s users. Prices could be over $700 for the phone in China, and with an average annual income in China of about $2,100, it could be a tough sell at that price point.

Given this, the iPhone deal might not be the game changer that many expect, though it seems like it definitely will boost revenues. The real question is by how much, and that will likely only be answered once the iPhone goes on sale for China Mobile in a little less than a month from now (January 17th).

But what do you think of this long-awaited news?

Is Apple finally back on track, or is this just a distraction from other issues at the company (such as what to do with that enormous cash reserve)?

Let us know what you think in the comments section below!

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