Is the Apple-China Mobile Romance Doomed?
It’s no secret that China is on Apple’s (NASDAQ:AAPL) radar. About 15 percent of Apple’s overall revenues now come from the Asian country, and the iPhone maker reported $5.7 billion in sales in China in the September-ending quarter, a 26 percent increase from the same period a year ago.
Morgan Stanley analyst Katy Huberty also wrote in a note to investors on Thursday that the country’s largest wireless provider, China Mobile (NYSE:CHL), may prove to be a big catalyst for Apple in the second half of next year. Currently, the operator is the only one of the top three in the country without a partnership with the iPhone maker. China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) — the other two — are meanwhile waiting to receive the new iPhone 5 sometime this year.
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However, according to Jefferies & Co.’s Peter Misek, the entry of China Mobile to Apple’s ecosystem may not easy because of the persisting technical constraints. Misek was making his assessment based on chipmaker Qualcomm’s (NASDAQ:QCOM) comments on Thursday. Qualcomm will need to make changes to its processors in order for the iPhone to work on China Mobile’s network. “The roadmap suggests no iPhone 5 at China Mobile in the first half of 2013,” Misek wrote. “Qualcomm noted that they are unlikely to gain much TD-SCDMA (China Mobile’s 3G technology) penetration until the ramp of TD-LTE, which is not expected to start wider trials until the second half of the year with a full ramp later).”
Misek also added that while he had hoped China Mobile would “represent potential upside” for Apple in the coming year, he will continue to “not include any units in our iPhone estimates and leave our model unchanged.”
However, Misek, who has a Buy rating on Apple and a $900 price target, added that he thought the nature of the current smartphone market was good for the iPhone overall. “The market will be barbell-shaped going-forward,” Misek wrote, representing either very sophisticated or very cheap, according to Barron’s. “Qualcomm noted increasing strength and focus on high-end flagship handsets going forward, which we interpret as a positive indication for iPhones. We also see significant unit growth at the low-end with the mid-market phones most likely to be pressured.”
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