Qualcomm Paves the Way for an Apple-China Mobile iPhone Deal

When Apple (NYSE:AAPL) added China Telecom (NYSE:CHA) as the second wireless carrier to sell the iPhone 4S in China, we wondered when the world’s largest wireless carrier, China Mobile (NYSE:CHL), would get to launch the phone. Almost as if in reply, Qualcomm announced the launch of its fifth-generation Gobi platform that would “support multiple LTE bands on a single device.” ^[1] This means that the iPhone 5, which is very likely to have LTE capabilities, can support both the under-trial 4G network as well as the so far incompatible 3G network that China Mobile runs.

See our complete analysis of China Mobile here

China Mobile will be a big catch

With over 650 million subscribers, China Mobile not only dwarfs its U.S. counterparts, Verizon and AT&T, but also its Chinese rivals, China Unicom and China Telecom, by close to 3 and 6 times, respectively. A wide network coverage has helped it net over 10 million iPhone users, as of October 2011. This means that despite the availability of a subsidized iPhone on competitor China Unicom’s network, people have chosen to pay for an unsubsidized iPhone just to be able to access China Mobile’s slower but more reliable 2G network. The availability of a subsidized iPhone on China Mobile’s network will be a huge opportunity for Apple to gain a strong foothold in the Chinese market.

However there are two significant bottlenecks. China Mobile doesn’t have a 3G network that the iPhone currently supports, and the LTE network that it is testing is also incompatible with the ones deployed by Verizon and AT&T in the U.S.

iPhone on China Mobile seems plausible now

But now that Qualcomm’s Gobi chipsets can not only support the TD-LTE network that China Mobile is testing but also the TD-SCDMA 3G network that it already has, Apple can finally have a true “world phone”. Qualcomm’s chipsets have already helped Apple launch the iPhone 4S as a single hardware for both the competing GSM and CDMA standards. The stellar performance by the iPhone 4S subsequently helped both the companies post record earnings in the fourth quarter of last year.

During the October-December period of 2011, when Apple had no carrier deals to sell the iPhone 4S in China, its market share dropped to 7.5%, and its market position was overtaken by ZTE. ^[2] However, after the recent deals with China Unicom and China Telecom and now hopefully with China Mobile, Apple can turn around its market share loss in China.

Our $550 price estimate for Apple stock is about 7% ahead of the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Qualcomm Announces Fifth Generation Embedded Data Connectivity Reference Platform, Company Site, February 21st, 2012 [↩]
2. Apple’s iPhone loses China market share, Reuters, February 17th, 2012 [↩]