Giving China What It Wants Will Spice Up Apple Stock

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Apple stock has needed a fresh catalyst for quite some time, and it's about to get one.

In the first of two related developments, Apple Inc. (Nasdaq: AAPL) has scheduled an event on Tuesday to unveil its new flagship iPhone 5S as well as a lower-cost version, expected to be called the iPhone 5C.

Just 10 hours later, Apple will host an event in China – an extraordinary measure for the Cupertino, CA-based tech giant.

At that event, Apple is widely expected to announce, after years of negotiations, a partnership with China's dominant carrier, China Mobile.

The combination of that deal with the iPhone 5C – a phone many believe is targeted at customers of more modest means in emerging markets like China and India – would indeed put some new sizzle into AAPL stock.

After slumping as much as 45% from its high of $705.07 last year, AAPL stock has recovered to about $497, but is still down 29.5% from that high.

Apple stock has suffered as the iPhone has lost market share to phones powered by Google Inc.'s (Nasdaq: GOOG) Android operating system and built by aggressive companies such as Samsung Electronics (OTC: SSNLF).

With the smartphone market in places like the United States and Europe reaching maturation, the iPhone 5C is the only way the company can arrest the slide in the iPhone's global market share, capture any meaningful growth, and rejuvenate the Apple stock price.

Apple already sells its older models, the iPhone 4 and iPhone 4S, at steep discounts in many countries, but the thinking is that a brand new model tailored to this critical portion of the market will prove far more popular.

"There are different needs in different markets," Wayne Lam, smartphone analyst at IHS Inc. told the Financial Times. "Apple has to have the right product lines to address that."

A Big Opportunity for Apple Stock

To understand how the iPhone 5C and a relationship with China Mobile could drive Apple stock, you need to look at the numbers.

Apple already sells through two Chinese carriers, China Unicom and China Telecom, with a combined subscriber base of about 405 million.

But China Mobile is the largest carrier in the world. Its 740 million subscribers dwarf its competitors, as well as the 100 million of the largest carrier in the United States, Verizon Communications Inc. (NYSE: VZ). China Mobile's customer base is actually more than twice the entire U.S population – every single man, woman, and child.

And the market is still growing rapidly; research firm IDC says unit shipments in China will rise 52% in 2014 to 458 million to account for one out of every three smartphones sold in the world.

But without a device for the middle and low end of the market, and without access to China Mobile's vast number of subscribers, iPhone sales in China declined 14% year over year.

Here's why the iPhone 5C will change all that…

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  1. Jesse | September 9, 2013

    Apple produces nothing special and is nothing but brand hype. Like Starbucks, however the people who want more value for their money will not be purchasing an icrap product. Rather a more efficient phablet. Or any android over the icrap. Dollar for dollarit just makes sense. Also, from what I seen in this wireless industry is that the youngsters see apple as boring. Apple is for the uneducated who think they are cool for flashing the little apple icon. Actually they look like fools with an overpriced piece of icrap.

  2. H Craig Bradley | September 12, 2013

    Apple did not get a contract with China Mobile so far. Why might that be? Is it a temporary setback or is there a more intractable issue ( or relationship problem w/ Chinese higher-ups) ?
    Its a big deal for Apple earnings, so analyists who follow Apple should have something to say about it.

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