iPhone 5: How China’s Mobile Carriers Stack Up
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With preorders starting on September 15th and an anticipated release date of October 12th, Apple (NASDAQ: AAPL) is looking for the iPhone 5 to jump-start its presence in the Chinese mobile telecom market.
Apple’s iPhone success varies with each of China’s big three carriers. China Mobile’s 3G network remains a major barrier to Apple as the iPhone isn’t compatible with this network. China Unicom, nearing the end of their subsidized phone agreement with Apple, has yet to renew. So far, only China Telecom has realized increased sales and subscribes from selling the iPhone.
China Mobile (NYSE: CHL) is the largest of China’s three major carriers and as of July 30, 2012, had 68.98 million 3G users out of 688 million 2G and 3G subscribers. The company also has 15 million unofficial unlocked iPhone users who purchased the smartphone for Wi-Fi. Apple is counting on the new iPhone 5, which should be compatible with China Mobile’s network, to help them tap into China Mobile’s 688 million customer base.
China Unicom (NYSE: CHU) comes in second with 162 million subscribers of which 60.62 million are 3G users. In September 2010, the company entered into an agreement with Apple to sell subsidized iPhones to customers who signed a two year contract. China Unicom may not renew the agreement, citing a lack of substantial profit to warrant contract renewal. They will, however, continue selling iPhones to customers willing to pay full price for the phone.
China Telecom (NYSE: CHA), the smallest of the three, has 53.81 million 3G users out of their 144.18 million subscribers. Unlike China Unicom, this company began offering subsidized iPhones on March 9, 2012, and saw 2Q sales increase by 14% while adding 8.35 million new users. China Telecom customers took advantage of receiving a fully-subsidized iPhone 4S under a two-year contract at $62/month or $46/month for three years. The subsidization costs weighed on their 2Q net profit, but not as much as analysts had expected.
Of the three, China Mobile has the strongest financials with a market cap of $215.86 billion. The company pays a $1.89 dividend for a 3.50% yield. Annual 2011 revenue increased to $83.889 billion from 2010’s $73.635 billion; net income also increased to $20.016 billion from $18.214, respectively. Cash is reported as $61.94 billion and debt as $4.51 billion and operating cash stands at $36.10 billion. The stock currently trades around $53.00-$54.00.
China Unicom has a market cap of $35.14 billion and pays a $0.14 dividend for a 0.90% yield. Annual 2011 revenue increased to $33.233 billion from 2010’s $26.006 billion and net income rose to $672 million from $562 million. Cash is reported as $2.95 billion and debt as $17.38 billion; operating cash is stated as $10.64 billion. The stock currently trades around $15.00-$16.00.
China Telecom, the smallest of the three, has a market cap of $44.89 billion and pays a dividend of $0.99 for a 1.70% yield. Annual 2011 revenue was $38.932 billion, up over 2010 revenue of $33.365 billion; net income also increased to $2.637 billion over $2.347 billion, respectively. Cash is stated as $6.02 billion against debt of $18.10 billion. The stock currently trades around $55.00-$56.00.
With over 1.3 billion people, Apple is looking at China to grow their sales and income, and FRB Capital analyst Craig Berger seems to agree: “We estimate that Apple should sell 250 million iPhone 5 units at an average ASP of $575, generating nearly $144 billion in revenue, $77 billion in gross profit, and $47 billion in net income." Chinese consumers are hungry for iPhones and investors may want to tap into this potential profit by buying stock or options in China’s carriers.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and China Mobile. Motley Fool newsletter services recommend Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.