Apple has completed its long anticipated iPhone distribution deal with China Mobile. The Cupertino-based tech giant will enjoy a sales windfall from the deal, but will the boost help the company recover share in the smartphone market?
The Wall Street Journal reported in December that China Mobile had, after years of talks, agreed to sell iPhones to its customers. This was initially denied by both parties, but China Mobile confirmed it would be accepting pre-orders of the iPhone from Thursday, December 12. Then the company removed mention of iPhones from its website, suggesting the deal was not quite done. However, on Apple announced the deal was done on December 23.
Apple hopes the long-awaited agreement with China Mobile, which boasts 759.3 million users, will help its sales figures in a country of increasing significance to the American behemoth, and the tech world at large. Apple’s revenues in China stood at $25 billion last quarter, a 13% increase from last year. The company relies heavily on the iPhone for revenue –– the devices accounted for 53% of total net sales so far this year, up 3% from last year and 11% from 2011.
Apple’s performance in China is certain to improve dramatically if the deal is signed, but analyst predictions vary on just how many more iPhones the company will sell through China Mobile. Brian White, an analyst at Cantor Fitzgerald, estimates Apple could sell 20-24 million iPhones to China Mobile in 2014.
”We estimate there are 35 million to 40 million iPhone users on the network at China Mobile. As such, Apple not only has the opportunity to attract new iPhone users but also to tap into a large base of iPhone users on the China Mobile Network that we believe could upgrade in 2014,” White wrote in a recent note.
White also predicted this could result in an earnings per share increase of $4. Other analysts expect the deal to add anything between 10 million and 40 million extra iPhone sales.
Apple holds a 12.1% share of the smartphone market, compared to Samsung’s 32.1%, according to third quarter 2013 data from Gartner. Apple looks increasingly isolated in the smartphone market, mainly due to the success of the Android operating system. Android holds an operating system market share of 81.9%, according to Gartner figures. In contrast, iOS takes a 12.1% share, and this is not the only troubling omen for Apple’s smartphone ambitions.
This year there were more apps designed for the Android operating system than iOS for the first time. If the content developers prefer Apple’s competitors, there may be trouble ahead. Paul Deninger, senior managing director at Evercore Partners, recently said at a Red Herring event that if current growth rates hold, Google Play, which hosts Android apps, could generate more revenue than the Apple app store by 2016.
The deal with China Mobile will vastly improve Apple’s revenues and smartphone market share. But down the line, the dominance of the Android operating system casts a longer shadow over the performance of the company’s iPhones. This deal will offer temporary relief for Apple and its investors, but the long term issues remain.