China Mobile Stocks 1.4 Million iPhone 5s Units Ahead of Friday's Launch

1.4M doesn't seem like a whole lot.

That is 1% of the entire Chinese population.

Your math skills are unimpressive.

I am sure the competitor's PR agencies will spin this into bad news.

That's because this really doesn't seem like a great number. Out of 800MM users, with apparently 200MM+ smartphones on the network, you would have hoped that pent-up demand was greater than 2MM units. Now, hopefully we will find out that it was, and 1.4 was simply all Apple could spare from other parts of the world where demand is still high, but to me that doesn't seem to wash. As a shareholder, I am certainly expecting a higher number than 15 million in the first year to China Mobile, and I expect that the stock will suffer to an extent if they don't sell an additional, say, 20MM as a result of this deal in 2014.

Remember, China Mobile is the last big new market for iPhone. I remember posting, years ago, about how the financial story for AAPL vis a vie the iphone was so great because look how good it already sells, and they are not yet in India, China, Brazil, Russia. Well now all those dominoes have fallen, and there is no "free" growth left. All new sales will come from markets where Apple is already competing with itself and Samsung and the rest. That's a scary change, from a growth perspective.

I think the larger iPhone is absolutely crucial to maintaining growth in sales. I am a freelance IT consultant, and I see many, many of my clients going to Android for one and only one reason - the big screen. The over 50 set (which is a HUGE market, new to smartphones) is being taken over by Android when it should not be so, because those people would rather have an iPhone. But they can't get past the screen size difference, so they buy Android phones.

I was simply talking about the total number of iPhones Apple sells without China Mobile... and the total number of iPhones about would sell with China Mobile.

Why would adding an additional carrier cause Apple to sell fewer iPhones overall?

Let's say the iPhone is on 250 carriers around the world... why would being on 251 carriers be worse?

I don't see how adding China Mobile will cause that.

it is not that the next carrier make Apple sell less on the current carriers.. It is just a sign of the time that the growth rate for smartphone in general slow down a lot yoy. And Apple top end market has even slower growth than the general smartphone market. Looks at it the other way, why shouldn't adding Docomo make fiscal 1Q14 revenue number a lot better than what Apple guided? Docomo has about 60M mobile users and had no Iphone exposure. Japan as a whole has 40% Iphone penetration with Softbank and Au as the two carriers that carry Iphone. If you work the math, the Iphone penetration for Softbank and Au customer base should be in the 60-70% range. So Docomo ultimately should give Apple about 36-42M Iphone sales spread out to 2 years (assuming they follow the 2 year subsidy cycle). That should add 5 to 6M new Iphone uses a quarter. But Apple guidance only show marginal improvement on revenue. Doesn't it tell you that Apple is losing sales somewhere else (as least compare to last year)? The upgrade cycle is the ultimate problem for all smartphone manufacturers. When the samrtphone was not powerful enough, everyone want the latest generation of phone. Right now 4 and 4s are still good enough for a lot of users. So not as many 4 and 4s owner will upgrade to 5s and sales will slow down. This situation is not too severe for subsidy country. But it is very problematic for "buy your device" country. Sales are not static. In fiscal 2013, there are a couple quarters that Apple revenue and earning drop compare to the same quarter in 2012. So sales drop do happen..

No it's not

So the Iphone 5S comes in different shapes, forms and price points ?

It's 1.4 million to satisfy the pent-up demand of 5 years

How then do you guauge the demand in this case? Provide your thesis how china mobile and apple should calculate first month's demand given that both parties would want to cover their bases and that the model is still not the most condusive to selling iphones (as others and you have mentioned given the cost of the iphone in china and the lack of enthusiasm for subsidy models that exist in the market currently).

One word of caution from WSJ via CNET:

The number doesn't account for all of China Mobile's iPhone 5S sales earmarked for January, the Journal added, but it does provide some insight into early demand for the phone.

http://news.cnet.com/8301-13579_3-57617182-37/china-mobile-snags-1-million-iphone-5s-units-report/

Verizon sold about 3.2 million in the first quarter of sales in 2011, it's first quarter of sales

In a totally different market with different price sensitivities, different carrier subsidy model and/or acceptance by the general user base.

These are things that have to be ironed out by the carriers in china, and its not going to happen overnight just by signing a deal with apple. Apple has the phone in china with its biggest carriers, its upto the carriers now to bring out innovative deals that provide an even greater percentage of the populus access to the device through discounts, subsidies and innovating financing options. Like I said, apple may in the future look at competing in the lower price category but I really do not see this happening anytime soon with anything other than older model phones. Even if you have X number of people that could perhaps afford the iphone, the iphone may not appeal to their desires..It may be too small for some..May be too much of a phone for others...This is always an issue when you compete with ONE MODEL as opposed to a linup and this is precisely why I think that apple will look to diversify into phablets and latest model phones at multiple price points..The current size of its potential customer base (Those around the world that can afford to buy their products) is large enough to allow them to do this and make a lot of money by doing so!

China mobile has been hyped as the biggest sales opportunity for iPhones in the world

When you sign a deal of this magnitude you think about what future benefits it brings..Deals so large usually take some time to bear fruit. What this deal does offer apple is an outrageous customer base (or potential customer base) that they can design their products around for the future. This in no way lets apple chop off its market presence in China (Stores, advertisement other deals and specials) or quit working with carriers to provide better means for customers ot own their devices. I see this deal in china having a great effect on apple's lineup of phones in the comming years...While they may sell 1.4 million iphones in a month and their may even be shortages as demand outstrips expectations form apple and china mobile I still feel that the effect will bring far greater benefits for apple in the comming years as they look at developing products for the future and entering new markets where they did not offer products earlier (Phablets, different price points, wearables etc)..

Comparing the US market (Verizon example) to the chinese market is unwise, Apple needs to build up the CHINESE market and that will take time..More stores, diverse products, overall acceptance of their products etc all takes time...They will continue to grow in china although the market share may decline in the short term (MAY) given other carriers could grow even faster, but all the investments in the back end, deals with carriers etc will bear fruit in the long term as apple establishes a firm (er) presence in the market.

I believe the market for apple is in its infancy given that apple has just struck a deal with its largest carrier! They'll need a few years to mature! New products will surely help !

1.4M doesn't seem like a whole lot.

Thats 1.4 mill a month for essentially 1 phone..Not a family of phones or multiple classes of phones..The iphone is expensive in china, does not cater to all of the customers due to a fixed size and/or feature set..So looking through that prism, if apple is able to sell one and a half million 5s's a month, it is a fairly good performance given that apple only competes in the upper end of the segement's price point..China also has 100's of millions of licenced drivers but BMW or mercedes are not going to sell 10's of millions of cars every month over there ! Remember that these carriers would also be offering the 5C, and i assume 4's and 4s's as well..What the China Mobile deal does to apple is gets them a large enough potential customer base to then work products around..If and when apple launches a phablet, iphone 6 apple would have quite a decent family of phones at different price points (5s's and 5c's would be cheaper by then) and screen sizes..That would be the LINEUP apple could use to really increase its sales in china which can go up quite quickly because the DESIRABILITY is still their for their products in china...Its just getting a product or a line of products that meets a large (er) customer bases's needs and wants !

China does not have a full subsidy plan like US or Germany. Their subsidy involve paying full price of the phone upfront and then every month the subsidy come in through discount. This year, all the China telecoms (CU, CT, and CM) has pretty lousy "subsidy". Basically you need to join their 286 or 288 RMB a month plan for 3 years before the discount is enough to cover the 5s cost. Last year, same plan with two year commitment (which means much bigger discount every month). As smartphone is getting better, the upgrade cycle get stretch out. Iphone 4 and Iphone 4s are perfectly usable device for a couple more years if you need to folk out the full cost of 5S from your own pocket. Smartphone already pass 50% mark of all phone (feature + smart phones) sales last year. So the growth rate is going to slow down (not the growth itself just the rate of the growth). The big bet right now is what is going to be the guidance for fiscal 2Q14 that management will hand out in late January. I think we will see the same-mo same-mo guidance as in fiscal 1Q14 i.e. fiscal 2Q14 guidance will be marginally higher than fiscal 2Q14. And Apple management would have done an exceptional job if they can generate similar revenue and profit as last year. Mobile device as we know it already pass the faster growth stage. We will continue to see growth but the rate will slow down. And the industry as a whole will see lower ASP (average sales price) and lower profit margin going forward.

Cost is going to be an issue in all markets with or without subsidies and that apple has to deal with since i do not think they are fully committed to compete in the lower pricepoints..Apple therefore will probably focus on its growth in the premeium phone market (see how it compares to the galaxy family in the comming years in china for example)..What the china mobile deal can perhaps bring about in the chinese market is a renewed competition to bring out newer plans that make it a little more easier to own the iphone..Some creative financing options or something that perhaps apple could look to engineer in the future, by working closely with providers in china..All in all the APPLE CHINA strategy in the next 4-5 years is going to be very interesting..In my opinion a bigger product lineup in the mobile category will go a long way at securing a higher marketshare, but for me apple would look more closely at the premium market share in the short-mid term while it develops a relationship with china mobile and looks at future plans for the all important market in china !

Just my 2 cents..