China Mobile (Photo credit: Wikipedia)
China Mobile, the he largest phone carrier in the world with about 700 million subscriber, is the next big prize for Apple. At present, China Mobile does not carry the iPhone.
It is not a surprise that Apple CEO Tim Cook paid a visit to China Mobile, but a statement from China Mobile appears to throw cold water on any immediate decision for China Mobile to carry iPhone. "In the morning, Apple's CEO Tim Cook visited China Mobile's headquarters. China Mobile's Chairman Xi Guohua and Tim Cook discussed matters of cooperation," said Li Jun, a China Mobile spokesman, in an emailed statement according to Reuters.
China Mobile had been in desperate need for a flagship high-end smart phone. Apple had been negotiating with China Mobile to make iPhone its flagship phone to fuel further iPhone growth in China.
Late last year in a surprise move, China Mobile chose Nokia's Lumia 920T, a phone based on Microsoft Windows Phone 8 over iPhone 5. Lumia 920T is the Chinese version of the flagship Nokia Lumia 920 available in the United States. Interestingly, China Mobile did not choose a Google Android phone as its flagship.
The biggest fall in four years in Apple stock on December 5th was attributed by some experts to Nokia’s win in China.
Apple’s Achilles’ heel is that it demands larger subsidies from carriers compared to its competition. Apparently, China Mobile is playing hardball and is not willing to provide the kind of subsidies that Apple traditionally demands from carriers. Some experts think that the real reason is that China Mobile uses a home grown 3G network and there are technical difficulties in adopting iPhone for this network. In my view, this is not the primary reason for China Mobile to hold off carrying iPhone.
As the news of Tim Cook’s meeting with Xi Guohua became widespread, Apple stock rallied to over $531 but could not hold and has now fallen to $518 as of this writing.
Also not helping today is the bullish earnings pre-announcement from Nokia. (See: Proof Positive Of Nokia Turnaround With 4.4 Million Lumia Phones Sold.)
There is still significant value in Apple stock. If a China Mobile deal is announced, Apple stock is likely to spike to
about $620 - $640. This is the reason that we continue to hold 20% of our original position although we have taken profits on the rest.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here. Subscribers to The Arora Report are long Apple, Nokia and Microsoft.
