With the iPhone just a few days away from arriving on China Mobile, analysts’ relief with the long-rumored deal’s consummation is paired with curiosity about what concessions Apple may have made to strike an accord with the world’s largest wireless carrier. According to Maynard Um of Wells Fargo:
The details of the agreement (pricing, margin, etc) are unknown and, thus, we believe gross margin bears watching.
The Cupertino California company have simply agreed to discount all or a portion of the handsets sold by China Mobile in order to relieve the high cost of subsidizing the devices, a point of contention with other iPhone carriers in the past. Alternatively, the company could have agreed to a revenue sharing agreement, which is similar to an agreement reached with Chinese search engine Baidu in 2012.
China Mobile’s customer base, which generally skews toward a less-affluent demographic could also opt for the lower-margin iPhone 5C over the more profitable iPhone 5S which may change results. For those of you who didn’t know, the cheaper iPhone 5C retails for $100 less than the iPhone 5S but it reportedly costs Apple just $25 less to manufacture. The margin issues aside, Um reiterated his believe that the China Mobile partnership will drive a significant overall boost in unit sales and may help to alleviate the iPhone’s typical post-Christmas slump.
Gene Munster of Piper Jaffray expressed renewed confidence in the bank’s own predictions after China Mobile Chairman Xi Guohua’s remark that the carrier had received “several million” pre-orders for Apple’s handsets. Munster previously forecast sales of 3 million iPhone units through China Mobile for the second quarter of 2014, adding an additional 5% to Apple’s revenue for the year.
Overall, investors remain bullish on the pact’s potential for Apple. Brian White of Cantor Fitzgerald believes China Mobile was “worth the wait” for investors, anticipating sales of between 20 million and 24 million additional devices in 2014. Mark Moskowitz pegs the number at a more conservative 2 million per quarter, while Cowen and Company’s Timothy Acuri places his estimate at 20 million to 30 million.
We’ll have to wait and see what the numbers actually look like by just being patient.