Apple in key China iPhone deal

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.

By (Bloomberg)

Published: Tue 24 Dec 2013, 12:51 PM

Last updated: Fri 3 Apr 2015, 3:39 AM

China Mobile will sell the iPhone 5s and 5c models in its retail stores starting January 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.”

In German trading today, Apple rose 3.3 per cent to the equivalent of $566.98 at 9:24 am in Frankfurt. The stock closed at $549.02 in New York on December 20. Shares of China Mobile rose 0.8 per cent to HK$80.55 in Hong Kong, paring this year’s decline to 11 per cent.

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 December 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 per cent of China’s total mobile subscribers at the end of October, down from 64 per cent 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 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 six per cent 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 US 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.”

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 per cent this year through December 20, compared with a 27 per cent gain in the Standard & Poor’s 500 Index.

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