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Apple Reaches IPhone Deal With China Mobile in Largest Market
2013-12-23 03:04:55.549 GMT
By Bloomberg News
Dec. 23 (Bloomberg) -- Apple Inc., ending six years of
negotiations, struck a deal to sell the iPhone through China
Mobile Ltd., giving both companies a means to fight declining
share in the market of 1.2 billion wireless subscribers.
China Mobile will sell the iPhone 5s and 5c models in its
retail stores starting Jan. 17, the companies said in a
statement that provided no financial terms. The phones for China
Mobile’s network will also be available in Apple’s retail stores
in China under the multiyear accord.
The agreement means Apple now has access to all carriers in
the world’s biggest handset market, where Samsung Electronics
Co. leads and smartphones using Google Inc.’s Android operating
system dominate sales. For China Mobile, which has 763 million
users, the deal may help draw high-end subscribers to its new
fourth-generation network while the company faces its first
annual profit decline in more than a decade.
“The China Mobile deal will significantly help Apple’s
position in China,” Bryan Wang, principal analyst and country
manager in China for Forrester Research, said today. “China
Mobile will use the iPhone to win back some high-end subscribers
who chose to defect to other carriers because of the iPhone.”
Shares of China Mobile rose as much as 1.7 percent, headed
for the biggest gain in five weeks, before trading 1.1 percent
higher as of 10:28 a.m. in Hong Kong. The stock has fallen 10
percent this year compared with a 1.4 percent advance in the
benchmark Hang Seng index.
New Sales
China Mobile may add 12 million new iPhone sales for Apple
in 2014, Katy Huberty, an analyst with Morgan Stanley, wrote in
a Dec. 16 report. The company sold 150 million all of last year.
Pre-registration for China Mobile will start Dec. 25 with
pricing and availability to be announced at a later date,
according to the statement. Apple declined to comment further.
China Unicom (Hong Kong) Ltd., the nation’s second-largest
carrier, began offering the iPhone in November 2009 and third-
ranked China Telecom Corp. followed in March 2012.
“It’s the last big gap in distribution” for the iPhone,
Benedict Evans, an analyst with Enders Analysis in London, said
after the announcement.
China Mobile had 62 percent of China’s total mobile
subscribers at the end of October, down from 64 percent a year
earlier and 67 percent at the same time in 2011, according to
company data.
“IPhone still matters a lot for high-end customers,”
Tucker Grinnan, a Hong Kong-based analyst at HSBC Holdings Plc,
said by phone before the announcement. “One of the main reasons
China Mobile is in the position that it is today, in terms of
growing revenue at a much slower pace than its competitors, is
because they have been waiting for an iPhone deal.”
Samsung Leads
Samsung led the China market in the third quarter, followed
by Lenovo Group Ltd., China Wireless Technologies Ltd., and
Huawei Technologies Co., according to Canalys, a technology
research company. Other homegrown phone makers such as Xiaomi
Corp. are also gaining traction.
Cupertino, California-based Apple ranked fifth with 6
percent of China’s market during the third quarter, Canalys said
in November.
Apple’s potential customer pool in China is limited by the
cost of the iPhone, which is more than the equivalent of $700.
Most buyers in China also don’t get the discounts and subsidies
that customers in the U.S. enjoy.
“Perhaps 100 million Chinese people can afford premium
products such as the iPhone,” Evans of Enders Analysis wrote in
an e-mail. “Important to note this isn’t quite 750 million new
customers.”
Market Saturation
Apple is seeking new users amid signs of saturation in the
market for high-end handsets. Chief Executive Officer Tim Cook
is under pressure to reignite growth and maintain the margins of
the world’s most valuable technology company. Apple’s stock rose
3.2 percent this year through Dec. 20, compared with a 27
percent gain in the Standard & Poor’s 500 Index.
China Mobile first said it was in talks to release the
iPhone in November 2007, the same year Apple began selling the
device. In 2010, Wang Jianzhou, China Mobile’s chairman at the
time, met Steve Jobs, Apple’s then-CEO. Discussions continued
this year, with two meetings in Beijing between China Mobile
Chairman Xi Guohua and Apple’s Cook.
In September, NTT Docomo Inc., Japan’s largest carrier,
ended its holdout against the iPhone. Reliance Communications
Ltd., India’s third-largest operator by market value, began
offering iPhone contracts in November.
Homegrown Network
One hurdle to an agreement had been China Mobile’s
homegrown third-generation network standard, which hasn’t been
adopted by any other carriers globally, and which Apple had been
reluctant to support. On Dec. 4, China Mobile was awarded a
license to begin commercial 4G service using the TD-LTE network
standard.
The iPhones will work on the 3G as well as the new 4G
networks, the companies said today.
China Mobile had also pushed Apple for a favorable business
model to offer the iPhone. Apple had to be willing to discuss
“benefit sharing,” China Mobile Chief Executive Officer Li Yue
said in December 2012.
China Mobile was trying to avoid the experience of China
Telecom, which reported a 10 percent drop in net income in its
first year of offering the device due to higher subsidies.
Even without the iPhone, China Mobile’s handset subsidies,
which hit 14.2 billion yuan ($2.3 billion) in the first half,
and costs for the rollout of 4G services are choking profit
growth. The company this year is projected to report its first
decline in annual profit since 1999, with net income to drop 2
percent to 126.1 billion yuan, according to the average of 23
analyst estimates compiled by Bloomberg.
In October, Apple forecast gross margins that missed
analysts’ projections amid higher costs to introduce new devices
ahead of the holiday shopping season. The company expects
revenue in the quarter ending December to be $55 billion to $58
billion, its first single-digit sales increase for the holiday
period since 2008.
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--Edmond Lococo and Adam Satariano. Editors: Robert Fenner, Lena
Lee
To contact Bloomberg News staff for this story:
Edmond Lococo in Beijing at +86-10-6649-7507 or
elococo@bloomberg.net;
Adam Satariano in San Francisco at +1-415-617-7204 or
asatariano1@bloomberg.net
To contact the editor responsible for this story:
Michael Tighe at +852-2977-2109 or
mtighe4@bloomberg.net