Summary
At last Apple gets to make a sizable entry into the Chinese mobile market and launch Chinese versions of its iTunes and Applications for the iPhone with China Unicom.
It will also be a good money earner, as the models launched have already recouped their R&D costs so margins will be higher, perhaps one reason it was prepared to forgo its normal revenue sharing approach.
This should add at least $13bn to Apples revenues, of which $300m will be operating margin.
Analysis
So far there are approximately 1m iPhones in China, all grey imports and without a tied operator deal.
It has taken 2 years for Apple to a) get an operator deal, b) agree a specification and c) prepare a unique Chinese version of the handset.
It is interesting to note that the iphone sent for testing last year does not have WiFi. Foxconn Technology Group (Foxconn), the contracted iPhone maker for Apple Inc. (Nasdaq: AAPL), is manufacturing a 3G version of iPhone tailored to customers in China, disclosed sources familiar with the matter. They also state that the device, seen in manufacture has no WiFi.
WiFi in China, while widely used, has like elsewhere been slow to be adopted by the mobile operators who are more keen to maximise revenues to pay down the massive costs of rolling out their networks.
China is a ripe market for smartphones, as early adopters with money rush to grab the latest model. Though with already 1m grey phones, you would have to be pretty sure of the marketing plan to offload 5m handsets. They have 3 years to do this based on the current deal, with a least 1m handsets in the first 12 months.
Also from an ARPU aspect, China Unicom will need to watch the competition, China Mobile is offering subsidies of 50% to try and capture market share. Second China Unicom is looking get ARPU 5 times higher than traditional phones, Rmb300 as opposed to Rmb60.
Peter Curnow-Ford consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
