Imminent iPhone launch on China Mobile could add $10B per year in revenue for Apple

Posted:
in iPhone edited January 2014
With evidence growing that the iPhone could launch on the world's largest carrier, China Mobile, on Dec. 18, analysts expect big things for Apple's financial bottom line in the coming 2014 calendar year.

iPhone 5s


Amit Daryanani of RBC Capital Markets said in a note to investors on Tuesday that he projects Apple will see an additional $9 billion to $10 billion in annual revenue added from a deal with China Mobile. He sees that adding about $3.00 in earnings per share to the company's stock.

Those estimates are based on a forecast of 17 million iPhone sales, with a conservative average selling price of $560 per unit and 30 percent operating margins.

A deal with China Mobile is hotly anticipated by investors because the carrier has 755 million subscribers, making it by far the largest wireless provider in the world. Of those, 170 million are high-speed data customers.

If Apple were to sell 17 million iPhones through China Mobile over the next year, it would represent a 10 percent penetration rate of the carrier's current 3G subscriber base.

To put China Mobile's reach in perspective, its competitors China Unicom and China Telecom combine for just 454 million subscribers. However, both of those providers have a higher penetration rate of 3G customers, with a combined 208 million high-speed subscribers in China.

iPhone 5c


Daryanani believes the addition of China Mobile could increase Apple's market in China by 1.8 times. He noted that total number of 3G subscribers in China continues to grow, with a sequential increase of 16 percent in the September quarter.

A potential deal with China Mobile has been rumored for years, but the appearance of a reservation system in Southern China has whipped up speculation once again that an iPhone launch is forthcoming. Another report from state-run media last month claimed that the iPhone 5s and iPhone 5c are set to launch on China Mobile Dec. 18, the same day the carrier is slated to activate its high-speed 4G LTE network.

Apple's latest iPhones are already offered in variants compatible with China Mobile's unique TD-LTE and TD-SCDMA networks.
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Comments

  • Reply 1 of 39
    Amit Daryanani has absolutely no way of qualifying those numbers.
  • Reply 2 of 39
    Quote:

    Originally Posted by SpamSandwich View Post



    Amit Daryanani has absolutely no way of qualifying those numbers.

     

    Probably not, but Apple selling on China Mobile is certainly going to bring in millions of customers which will translate into billions of $$$.

     

    If it launches on Dec 18th, and if Apple has enough stock to meet demand, I can see the China Mobile launch adding a few million more iPhone sales in the first week alone.

     

    Apple's going to have a killer holiday quarter.

  • Reply 3 of 39
    poochpooch Posts: 768member
    Amit Daryanani has absolutely no way of qualifying those numbers.

    Probably not, but Apple selling on China Mobile is certainly going to bring in millions of customers which will translate into billions of $$$.

    If it launches on Dec 18th, and if Apple has enough stock to meet demand, I can see the China Mobile launch adding a few million more iPhone sales in the first week alone.

    Apple's going to have a killer holiday quarter.

    ... and how do you qualify your "millions of customers which will translate into billions of $$$" statement? a guess?
  • Reply 4 of 39
    Originally Posted by Pooch View Post

    ... and how do you qualify your "millions of customers which will translate into billions of $$$" statement? a guess?

     

    Billions of millions of trillions of guesses.

  • Reply 5 of 39
    canukstormcanukstorm Posts: 1,777member
    Quote:

    Originally Posted by Pooch View Post





    ... and how do you qualify your "millions of customers which will translate into billions of $$$" statement? a guess?

    China Mobile has approximately 600 million users / customers.  Even if Apple captures say 5% of that, that's 30 million customers. Let's say for argument sake, the average selling price of an iPhone in china is $600;

     

    30 million x $600 equals $18 billion.  That's just based on my numbers (which are assumptions of course).

  • Reply 6 of 39
    drblankdrblank Posts: 3,383member
    Quote:

    Originally Posted by SpamSandwich View Post



    Amit Daryanani has absolutely no way of qualifying those numbers.

    It is just a GUESSTIMATE.  Don't get all weird about it.  He used an estimate of 17 Million iPhones sold to the China Mobile customer base in 2014.  Personally, I think that GUESSTIMATE, is low, but analysts would be better if they underestimated rather than over estimated.  It's kind of stacking the deck so they don't look foolish by overestimating.  That practice is used not only by Apple internally when making projections, but most people would suggest it's safer to use lower numbers than high numbers.  If Apple brings in more than these estimates, then Apple looks great, if Apple doesn't bring in that much, then Apple looks foolish.  It's the analyst game that's been played since the beginning of time.

     

    I think guesstimating 17 Million iPhones with an average price of $560 per phone with 30 percent operating costs is a VERY SAFE number.  I personally think they are going to sell quite a bit more than 17 Million iPhones in the first year with China Mobile.

     

    I know China Mobile has 740+ Million subscribers, but how many smartphones does China Mobile currently sell to their subscriber base that's either repeat customers or new customers?

     

    There is no way of any analyst knowing how many Apple is going to sell through China Mobile than Apple, you or I, or anyone else for that matter.  Amit might have other sales numbers that he has gathered to arrive at that number.  Or, it's just a gut feeling, but it's a safe number to project.

  • Reply 7 of 39
    solipsismxsolipsismx Posts: 19,566member
    pooch wrote: »
    ... and how do you qualify your "millions of customers which will translate into billions of $$$" statement? a guess?

    EricTheHalfBee's statement is considerably more general than Amit Daryanani's comments. Not only does Amit predict $9-10 billion, he specifics it's on 17 million iPhone at a $560 retail price with a 30% margin. For me, that's just way too specific to say I agree with that statement. It's not unreasonable that it couldn't happen, it's too very specific which leads to a much lower likelihood of being accurate. However, with EricTheHalfBee I could definitely say I agree what that it will be more than 1 million customers and over $1 billion in revenue in the first full year.
  • Reply 8 of 39
    Quote:

    Originally Posted by Tallest Skil View Post

     

     

    Billions of millions of trillions of guesses.


     

    <img class=" src="http://forums-files.appleinsider.com/images/smilies//lol.gif" />

  • Reply 9 of 39
    Quote:

    Originally Posted by SolipsismX View Post





    EricTheHalfBee's statement is considerably more general than Amit Daryanani's comments. Not only does Amit predict $9-10 billion, he specifics it's on 17 million iPhone at a $560 retail price with a 30% margin. For me, that's just way too specific to say I agree with that statement. It's not unreasonable that it couldn't happen, it's too very specific which leads to a much lower likelihood of being accurate. However, with EricTheHalfBee I could definitely say I agree what that it will be more than 1 million customers and over $1 billion in revenue in the first full year.

     

    To quote Jim Dalrymple, "Yep".

  • Reply 10 of 39
    gwmacgwmac Posts: 1,795member

    Here is what I find most interesting. Samsung has been selling their phones in every single country and on every single carrier on the planet for many years. Apple is just getting started and there are still many more countries they can continue to expand. It is hard to see how Samsung can grow much further than they already have. Meanwhile Apple has several billion potential new customers that will now start being able to buy an iPhone for the first time in the next few years as they continue to add more countries and carriers. Once Apple not only expands to more countries but also offers an iPhone with a larger display Samsung will no longer have any safe harbor. 

  • Reply 11 of 39
    A lot of variables come into play as well as Price point, Roll out of network (will it be all at once or certain cities and providence at a time.). And most importantly Asian acceptance of the models which are expected to b good but how good
  • Reply 12 of 39
    jungmarkjungmark Posts: 6,626member
    Silly Apple, analysts have said there is no growth at the high-end. Give up. /s
  • Reply 13 of 39
    sumergosumergo Posts: 197member
    Quote:
    Originally Posted by SpamSandwich View Post



    Amit Daryanani has absolutely no way of qualifying those numbers.



    For sure; but it's good to see AAPL being seen as a good potential investment for a change ;-)

  • Reply 14 of 39
    gwmacgwmac Posts: 1,795member

    Apple will eventually go in the direction of a single universal component to reduce the number of SKU's they need to produce, and with Apple's scale the cost differential issue will be resolved. I thought that was going to happen this year with the new universal Qualcomm RF360 but for some reason they used the older Qualcomm LTE they used in the iPhone 5. I wonder what caused the delay? I suspect it just could not have been produced in a high enough volume so Apple didn't want to risk a possible shortage.

     

    If it is ready for the iPhone 6 this will reduce the number of SKUs down to ones just based on the color and storage size which I imagine would provide a very nice cost savings not to mention a battery boost. The RF360 allows for 40 LTE bands as well as all GSM and CDMA . No more Verizon, China Mobile, or Vodafone versions of an iPhone, just one sku that can be sold in any and every country. All the pieces are falling into place for much higher sales for Apple. 

  • Reply 15 of 39

    This guy's estimating that only ~2.3% of CM's customers will buy iPhones. That is plainly silly.

     

    At a (very reasonable) P/E ratio of, say, 14x, his EPS increase estimate o f $3 per share translates to a $42 per share price increase. That increase has already likely happened over the past couple of weeks (more than a third of it today), without even a formal announcement. 

     

    When the announcement is made, I could see a further jump in AAPL.

     

    If Apple were to get even 5% of CM (which I think is quite likely, since it is already estimated to have a 6% share in China even without CM's customers), and taking all of his other assumptions -- which also appear to be conservative, since they do not seem to take into account the HUGE economies of scale that it will achieve from selling tens of millions of extra iPhones -- as given, that will be (0.05)*(755M)*(560) = $21.14B in extra revenue, or $6.34 in additional EPS.

     

    At a (very reasonable) P/E ratio of 14, that is a ~$89 increase in share price.

  • Reply 16 of 39
    solipsismxsolipsismx Posts: 19,566member
    gwmac wrote: »
    Apple will eventually go in the direction of a single universal component to reduce the number of SKU's they need to produce, and with Apple's scale the cost differential issue will be resolved. I thought that was going to happen this year with the new universal Qualcomm RF360 but for some reason they used the older Qualcomm LTE they used in the iPhone 5. I wonder what caused the delay? I suspect it just could not have been produced in a high enough volume so Apple didn't want to risk a possible shortage.

    If it is ready for the iPhone 6 this will reduce the number of SKUs down to ones just based on the color and storage size which I imagine would provide a very nice cost savings not to mention a battery boost. The RF360 allows for 40 LTE bands as well as all GSM and CDMA . No more Verizon, China Mobile, or Vodafone versions of an iPhone, just one sku that can be sold in any and every country. All the pieces are falling into place for much higher sales for Apple. 

    A couple thoughts. One, unified chips tend to be less power efficient that those designed for a specific task, not to mention there are cost and size considerations. Two, I would expect any country that still uses CDMA will have a different SKU for each CDMA MNOs due to the way the chipsets needs to be flashed to support a specific CDMA carrier.
  • Reply 17 of 39
    Quote:

    Originally Posted by BUSHMAN4 View Post



    And most importantly Asian acceptance of the models which are expected to b good but how good

    Um... China = 'Asia'? <img class=" src="http://forums-files.appleinsider.com/images/smilies//lol.gif" />

     

    (For starters, look up what iPhone's share was in the past quarter in Japan -- and last I looked, Japan was in.... Asia).

  • Reply 18 of 39
    drblankdrblank Posts: 3,383member
    Quote:

    Originally Posted by CanukStorm View Post

     

    China Mobile has approximately 600 million users / customers.  Even if Apple captures say 5% of that, that's 30 million customers. Let's say for argument sake, the average selling price of an iPhone in china is $600;

     

    30 million x $600 equals $18 billion.  That's just based on my numbers (which are assumptions of course).


    Currently, what's the average selling price for the iPhones that are selling into China (that's the number to use), then you calculate how many people buy Smartphones through China Mobile a year.  Not all of CM's subscribers buy Smartphones, many are still on feature phones due to lack of money.   Right now, it's just too early to predict, but I think the first couple of years will be great and then it will taper to some normal level.

     

    I would say 20 to 30 Million phones is probably more realistic, but it could go higher, especially if Apple kicks out large screen iPhones in addition to the existing models, which is VERY likely. 

     

    Obviously, $560 vs $600 isn't the much difference, but I think Amit was just using a number he already knows is the average selling price.

     

    One thing to always remember, analysts will revise their estimates on a quarterly basis as they get additional information from Apple, or market observations.

     

    I would wait for at least another 4 or 5 analysts make their predictions and then take an average.  Some analysts are consistently wrong, some are fairly accurate, whether or not you like the predictions.

     

    Here's something to find out.  Out of the other China based carriers, what's Apple's market share?  20%, 30%?  Is it growing, staying stagnant or shrinking?  

     

    Let's run a couple of what ifs.  Let's assume for a second that the other carriers have 20 and 30% of their subscribers are iPhone users, so it's possible that CM could see the same market share numbers within their own market over the course of 3 years.

     

    740 Million subscribers total x .2 =  148 Million iPhone users

    740 Million subscribers total x .3 =   220 Million iPhone users



    Obviously, I don't know if they will get those numbers after the first year, but after the 3rd year, it's possible.

     

    148/3 = 49 Million Users a year on average.

    220/3 = 73 Million Users a year on average.

     

    Do you like those numbers?  The caveat is that Apple has to be able to MEET those demands.

     

    At their current rate of 500,000 iPhones a day in production, w/o any increase in production, they would hit 180MIllion units if they are operating 360 days a year.  Last year, they sold around 148 Million units for 12 months, so they have enough capacity (currently) to handle an increase of 32 Million units a year.  If they add more capacity, they could potentially ship even more.

     

    I don't know the current landscape for the China market, but I think 17 Million units is low.  I think (providing they can meet demand and kick out a 5inch model early enough next year), they could easily see 50 Million units, not 17 Million, providing all goes as predicted and there aren't any strange occurrences unforeseen. 

     

    Time will tell what the REAL numbers are.  But I think the number is going to be somewhere in between 20 and 50 Million units for just China Mobile in 2014, providing things progress how I think they will.

  • Reply 19 of 39
    drblankdrblank Posts: 3,383member
    Quote:

    Originally Posted by anantksundaram View Post

     

    Um... China = 'Asia'? <img class=" src="http://forums-files.appleinsider.com/images/smilies//lol.gif" />

     

    (For starters, look up what iPhone's share was in the past quarter in Japan -- and last I looked, Japan was in.... Asia).


    Japan is a small country compared to China.  Japan's population is around 127 Million people.  China has a population of 1.35 Billion.  China is 10x the size in terms of population.

  • Reply 20 of 39
    drblank wrote: »
    Japan is a small country compared to China.  Japan's population is around 127 Million people.  China has a population of 1.35 Billion.  China is 10x the size in terms of population.

    Uh!? What does Japan's size have to do with whether it's in Asia?

    Moreover, you know that Japan has 10x the income of China, right? Do you think that might have some implications for the number of iPhones sold there?
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