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Apple bets on China's 4G race

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Apple and its investors have been betting on China and its opening of 4G set for Dec.18. It is a game changer for China and a big opportunity for Apple to final have access to China mobile’s 759 million subscribers, CNET reports.

Last week China’s Ministry of Technology awarded 4G contracts to three mobile service providers in China: China Mobil, China Unicom, and China Telecom. These contracts further raise hope that the rumored China Mobile-Apple deal will go through, according to the Motley Fool report on its blog today, 'China's 4G race.'

Apple is rumored to be close to reaching a deal with China Mobile that would see its new iPhones, the 5s and 5c, carried by the world’s largest mobile network provider. Apple has pre-orders for an iPhone 5S along with 4G. This is the game changer for Apple. Without 4G accesses the growth rate of 5S and 5C sales in China would be stagnant.

The immediate future will limit sales, as only three cities in China will have 4G; the service will only be available in three cities at launch, Beijing, Guanzhou, and Chongqing, while Shanghai is undergoing the construction of its 4G network. This will limit the growth of its 4G users, not to mention the growth rate of iPhone 5S and 5C sales in China.

Besides Apple, Samsung and Nokia would profit in the future from 4G along with networks solutions and infrastructure companies, and 4G chip manufacturers according to the Motley Fool.

Because it's unknown how much China Mobile will subsidize the phones, it's worth examining how other Chinese carriers have subsidized iPhones for their own subscribers. According to Phoenix Tech, the iPhone 5s will cost $898 on China Unicom without a contract. But, if customers sign up for a 30-month contract (that costs about $63 per month), they will get the phone for free.

Money is made in turnover every 18-20 months. So if contracts can be adjusted and subsidized by the mobile supplier, then Apple can adjust to sales quicker.

Nokia is a Finland-based company engaged in the mobile infrastructure business. Nokia Solutions and Networks received about $400 million in China Mobile's money influx. Nokia recently got its struggling mobile phone division off its books by selling it to Microsoft. Now, Nokia is ready to focus on its mobile services division.

Samsung will be a big winner in the 4G change since it manufactures chips used in the Apple iPhone and sells smartphones. Their sales in China are also the leading smartphone vendor in China, with 21% of the smartphone market share. Samsung saw smartphone shipments soar 150% year-over-year in China. Over the past year, Samsung has struggled to keep profit margins high because of the increasing cost of labor at its factories in China, but has decided to move production of its mobile devices to Vietnam, where labor is almost 70% cheaper.

When, and if, the China Mobile-Apple deal is confirmed, investors should examine the subsidy China Mobile will offer customers and how much of the market Apple gains for its 5S and 5C.

Chinese consumers are looking at the cost efficient smartphone in relation to its features. This consumer preference will determine how much Apple and other smartphone competitors gain in market share.

New data from Counterpoint Research show that Apple’s iPhone has seen a major resurgence in China over the past couple of months as its market share in the country has jumped from under 5% in September 2013 to around 12% in October 2013. This surge in iPhone sales, which unsurprisingly coincided with the launch of the iPhone 5s and the iPhone 5c, vaulted Apple from sixth place all the way up to third place in just the span of a month.

The Motley Fool owns shares of Apple and China Mobile.


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