September 4, 2013 7:14 pm

Apple event raises hopes of China Mobile deal

A man talks on an iPhone in Beijing©Reuters

Capital call: the launch will follow much negative publicity for Apple in China this year

Apple plans to hold near-simultaneous product launch events in California and Beijing for the first time next week, sparking hopes among investors for a long-awaited iPhone partnership with China Mobile.

An invitation sent to Chinese media on Wednesday revealed an event on September 11, hours after the latest iPhone is expected to make its debut at Apple’s Cupertino headquarters.

The event follows a barrage of negative publicity for Apple in China earlier this year, after it was accused by state media of offering poor customer service, prompting an apology from Tim Cook, chief executive.

Since then, Mr Cook has flown to China to meet Xi Guohua, the chairman of China Mobile, to discuss “matters of co-operation”. Investors hope that striking a distribution deal with the world’s largest mobile operator by customers, alongside a cheaper iPhone designed to appeal to consumers in emerging markets, will reignite Apple’s flagging growth.

After losing some of the momentum gained by the prospect of new device launches and investment from activist shareholder Carl Icahn in recent days, Apple stock opened above $500 on Wednesday morning. The shares ended 2.07 per cent higher closing at $498.69 in New York.

China is Apple’s second-largest market but it faces strong competition from local, lower-cost smartphone makers such as Lenovo and Xiaomi, many of which use Google’s Android platform. Google announced on Tuesday that it had activated more than 1bn Android devices to date, far exceeding the iPhone’s total sales. Apple’s sales fell 14 per cent in China in the third quarter, partly due to inventory adjustments.

UBS has estimated that Apple could sell 17m iPhones through China Mobile next year, accounting for more than half of its forecast for total iPhone unit growth, while analysts at Stifel say it could add $4 to $8 in earnings per share over the 12 months after launch.

China Mobile had 745m subscribers in July and is trialling 4G “LTE” networks. Though less than a third of the Chinese mobile market today uses the 3G networks that are required for a good experience on devices like the iPhone, the Chinese smartphone market is growing rapidly, more than doubling in the first half of 2013 to around 150m shipments, according to Gartner. That far exceeds Gartner’s estimate for global smartphone growth of 46.5 per cent in the second quarter.

The global market is maturing for smartphones, there are different needs in different markets. Apple has to have the right product lines to address that

- Wayne Lam, smartphone analyst at IHS

Benedict Evans, analyst at Enders Analysis, said it would be a “good PR and political move to do a dedicated event for China” by Apple, after attacks from the Chinese state media this year. That resulted in Apple issuing a warranty extension for Chinese iPhone customers, which incurred “material” costs for the company, contributing to a disappointing earnings report that quarter.

“If China Mobile is carrying the new iPhone then they can thank the CEO in person,” he said. “Showing appropriate respect by coming in person has real value for a foreign brand.”

Wayne Lam, smartphone analyst at IHS, suggests that Apple might break with its pattern of previous years and launch iPhones with slightly different configurations or components in different markets. The existing iPhone supports many different mobile networks, for example, which are not used in every country. This would reduce the cost of the device but introduce greater complexity in Apple’s supply chain.

“The global market is maturing for smartphones, there are different needs in different markets,” Mr Lam says. “Apple has to have the right product lines to address that.”

“China Mobile is the white whale for Apple,” he says, noting the two companies’ long courtship. “It will be interesting to see how much they sacrifice to get there. A lot of it hinges on cost, subsidy and profit-sharing. It would be a big win for Apple.”

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