Apple Inc. (NASDAQ:AAPL) made its first major foray into the Chinese telecommunications market in January 2014 via a pact with China Mobile, and a report issued today indicates that no less than a million new Middle Kingdom subscribers opted for iPhones in February. The report was issued by Chief Executive Li Yue of the state-owned telecommunications enterprise. Mr. Li also remarked on the company’s first negative net profits in 10 years, though this problem appears wholly unrelated to the Chinese launch of the iPhone.
In fact, if projections are correct, China Mobile Ltd.’s pact with Apple Inc. (AAPL) may be its best chance of restoring its fortunes in the face of aggressive competition from China Telecom and China Unicom. Intriguingly from a Western point of view, both of these firms are state owned as well. Though Chinese government is largely monolithic and totalitarian, individual enterprises owned by it are evidently capable of competing against each other as bitterly and relentlessly as any private companies.
Needless to say, the alliance between the American electronics firm and the Chinese telecommunications titan is likely to net Apple (AAPL) a vast windfall of cash over the course of 2014. Somewhere between 15 million and 30 million extra iPhone sales are expected to be generated over the course of 2014, as more Chinese subscribers opt for the elegant and world-famous smartphone. The new sales go hand in hand with the expansion of China Mobile Ltd.’s rapid expansion of its 4G network coverage, which is slated to continue throughout the year.
The iPhone 5S, despite being more expensive, has proven to be the most popular iPhone model in China thus far. What impact the probable release of the iPhone 6 sometime later this year will have on Chinese iPhone sales, if any, is still unknown. With market penetration rising from zero to 30 million subscribers in a single year, it is difficult to imagine any greater success for Apple in the huge, formerly untapped Asian market, regardless of a new phone launch.
China has long been the bastion of LG, Samsung, and other telephone brands from Asia. Apple Inc.’s (AAPL) penetration into the region is itself a sign of changing times. It may also lead off other forays into the huge potential marketplace offered by China, whose more than 1 billion people likely include at least several tens of millions willing and able to purchase such items as the iWatch and similar products.
