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

That is a lot of new iPhone users. I wonder how this will affect app sales.

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

Compile 'em all said:

That is a lot of new iPhone users. I wonder how this will affect app sales.

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That's why many apps are going freemium. Plants Vs. Zombies 2 developer noted that it's doing well in China.

1.4M doesn't seem like a whole lot.

And how many 5c's?

Jaro65 said:

1.4M doesn't seem like a whole lot.

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per month.

Is 1.4 mil even enough given the obnoxiously huge Chinese population ?

Jaro65 said:

1.4M doesn't seem like a whole lot.

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That's for the first month.

Imagine the next month, next quarter, next year, etc.

Adding China Mobile can only be good for Apple.

Consultant said:

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

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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.

Michael Scrip said:

That's for the first month.

Imagine the next month, next quarter, next year, etc.

Adding China Mobile can only be good for Apple.

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ha ha, how do you know the sale through rate that Apple/CM to make that statement? China is a very big country, a 1.4M unit may mean only a few unit per stores in the smaller cities. This is more of a statement of how confidence CM has on Iphone sales. When Apple ship a unit to carrier, Apple collect the money and it is up to the carrier to sell the unit (if carrier cannot sell the unit, they will have to eat the cost). There is absolutely no buzz in Chinese Iphone user site. The subsidy is terrible. CM is going to follow the "buy your own device" strategy with lower network charge and lower subsidy.

Perhaps you don't understand the income gap in China?
http://www.businessweek.com/magazine/content/11_06/b4214013648109.htm

In addition, most people in emerging markets buy a smartphone to use as dumbphone, as they cannot afford a data plan or a device fast enough to run apps at a usable speed.

Yes, many people use Android as a starter phone, but the sales data in the U.S. shows that in a mature market, people switch to the iPhone.

cameronjpu said:

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.

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xofruitcake said:

ha ha, how do you know the sale through rate that Apple/CM to make that statement? China is a very big country, a 1.4M unit may mean only a few unit per stores in the smaller cities. This is more of a statement of how confidence CM has on Iphone sales. When Apple ship a unit to carrier, Apple collect the money and it is up to the carrier to sell the unit (if carrier cannot sell the unit, they will have to eat the cost). There is absolutely no buzz in Chinese Iphone user site. The subsidy is terrible. CM is going to follow the "buy your own device" strategy with lower network charge and lower subsidy.

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I don't know the sell-through rate for Apple and China Mobile. The phone isn't even on sale yet. But people smarter than you and I are looking into it.

The article says "While the initial shipment volume doesn’t represent the total sales at China Mobile for January, the figure helps to gauge early demand for iPhones from China Mobile"

They're gonna figure it out soon enough. Probably after the iPhone actually goes on sale at China Mobile.

Do you think Apple will sell fewer iPhone now that it is available on China Mobile? I don't see how that is possible.

cameronjpu said:

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.

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We have to see how it sells to really tell. If this 1.4m last through the month, then we can say it isn't too large a number. But if there are lines and stores are sold out in a week, then we can guess the demand is quite strong and that many more phones would have been sold if shipped.

China Mobile may not want to sell the maximum number of these phones it can. The cost to it is probably much greater than if it sells another phone. So sell outs or inconsistent availability might be a good thing as it pushes folks who do not care too much to buy an Android. The folks who do care will get their phone and not jump to another network.

A fuzzy incomplete report from a questionably reliable source.

iPhone sales were already up in China in the last quarter.

iPhone sales will be robust in China through 2016.

Michael Scrip said:

I don't know the sell-through rate for Apple and China Mobile. The phone isn't even on sale yet. But people smarter than you and I are looking into it.

The article says "While the initial shipment volume doesn’t represent the total sales at China Mobile for January, the figure helps to gauge early demand for iPhones from China Mobile"

They're gonna figure it out soon enough. Probably after the iPhone actually goes on sale at China Mobile.

Do you think Apple will sell fewer iPhone now that it is available on China Mobile? I don't see how that is possible.

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yes, I can see a case for lower sales. The fiscal 1Q14 guidance is a good indication. We have Docomo initial inventory build in fiscal 1Q and Apple guidance in revenue is only marginally higher than fiscal 1Q13. The problem is not US or Japan or other Western European country with 2 years subsidy cycle. Apple is winning sales in those area. The problem is places like China, Africa, Eastern Europe, Asian country has has "buy your device" plan. 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.

iapplelove said:

Is 1.4 mil even enough given the obnoxiously huge Chinese population ?

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That is 1% of the entire Chinese population.

hkenneth said:

That is 1% of the entire Chinese population.

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No it is not. It's 0.1% of Chinese population. Compare this to 90% (or whatever but it's a big number) that use Android phones in China.

512ke said:

A fuzzy incomplete report from a questionably reliable source.

iPhone sales were already up in China in the last quarter.

iPhone sales will be robust in China through 2016.

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Other than the statement about last quarter....
Your comment is an even fuzzier, ever less complete report (read: wild uninformed guess), from a much more questionably reliable source.

Lol, unbelievable that you would diss a paid analyst's guess... Then IMMEDIATELY post your own amateur guess- purported as fact, no less!

*mother of all face-palms*

xofruitcake said:

yes, I can see a case for lower sales.

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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.

hkenneth said:

That is 1% of the entire Chinese population.

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Your math skills are unimpressive.

Consultant said:

Perhaps you don't understand the income gap in China?
http://www.businessweek.com/magazine/content/11_06/b4214013648109.htm

In addition, most people in emerging markets buy a smartphone to use as dumbphone, as they cannot afford a data plan or a device fast enough to run apps at a usable speed.

Yes, many people use Android as a starter phone, but the sales data in the U.S. shows that in a mature market, people switch to the iPhone.

Click to expand...

The data in the US only shows that the carrier subsidy model favors iPhone A LOT, nothing more.

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hkenneth said:

That is 1% of the entire Chinese population.

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Wrong, 1‰, or 0.1%.

Jaro65 said:

1.4M doesn't seem like a whole lot.

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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.

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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..

vomhorizon said:

Thats 1.4 mill a month for essentially 1 phone..Not a family of phones or multiple classes of phones..

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No it's not. It's 1.4 million to satisfy the pent-up demand of 5 years, and that's what's unimpressive. Verizon sold about 3.2 million in the first quarter of sales in 2011, it's first quarter of sales. China mobile has been hyped as the biggest sales opportunity for iPhones in the world, but comparing 1.4 million for 1 month vs 3.2 million to Verizon in a quarter, back 3 years ago, leaves me unimpressed. Whether I am impressed or not doesn't matter though, the question (for investors) is what the stock market expected. If it on aggregate expected better, then the stock will move down (having already moved up on the hope of better sales in the past). This of course will cause consternation among amateur investors who don't understand how the market works

No it's not

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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

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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

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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

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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 !