Apple shares rise on Chinese deal

Customers looking at iPhones at an Apple store in ChinaThe new deal is expected to help Apple boosts its sales in China

Shares in US technology giant Apple have jumped 3% after it signed a deal to supply its iPhone to China Mobile.

The Chinese firm is the world’s largest carrier and was one of three networks to be awarded China’s first 4G licences earlier this month.

Apple has been looking to boost its sales in China, the world’s largest smartphone market, but has struggled amid growing competition from rivals.

The latest deal is expected to help it increase its market share.

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Last Updated at 27 Dec 2013, 16:00 ET

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“China is an extremely important market for Apple,” Tim Cook, Apple chief executive, said in a statement.

“Our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network.”

Earlier this year, Mr Cook said he expected China to replace North America as Apple’s largest source of revenue. The iPhone is the firm’s most important product in terms of earnings power.

China Mobile has more than 760 million subscribers.

The country’s two other major phone carriers, China Unicom and China Telecom, already offer iPhones to their subscribers.

Cheaper rivals

China is the world’s biggest smartphone-using country, with 1.2 billion users.

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Apple’s “imminent” deal with China Mobile has been a long running soap opera. Back in September when a separate launch event for the iPhone 5C and 5S was held in Beijing, it was assumed that an agreement had already been reached.

But fixing terms between the world’s biggest mobile operator and a company which has always played hardball when it comes to pricing, was never going to be simple.

Apple has long been a highly prized brand in China, with fake Apple stores springing up all over the country. But even with access to China Mobile’s 700 million customers, don’t expect it to grab a big share of the market.

Samsung is the biggest overseas brand – the Chinese market was quick to see the attractions of the oversized Galaxy Note “phablet” – and home-grown brands like Xiaomi are giving consumers the smartphone experience at a much keener price than Apple can offer.

Nevertheless, China has a big appetite for luxury brands – for Rolls Royce it vies with the USA as its biggest market.

Apple does not have to be number one in China to make huge amounts of money there, so don’t expect the company to follow the advice of some analysts and launch cut price models. It will settle for being the Rolls Royce of the mobile market.

But Chinese sales of previous iPhone models have slumped recently, as consumers have turned to cheaper rival handsets from Samsung, and domestic Chinese developers.

China’s three bestselling smartphone makers are Samsung, Lenovo and Coolpad, according to a recent report by the consultants IDC.

Apple’s sales have also been impacted by the fact that unlike in developed markets, many phone carriers in emerging markets do not subsidise smartphones.

That means that subscribers have to pay the full amount for the phone upfront, making Apple’s products relatively expensive for some buyers.

In an attempt to take on the low-cost rivals Apple unveiled a relatively cheaper version of the iPhone, the 5c, earlier this year.

Analysts said the firm was hoping that a cheaper handset combined with a deal with the biggest mobile carrier in the world may help it take on rivals.

However, Apple is yet to announce how much Chinese customers will have to pay for the iphone 5s and 5c models sold via China Mobile.

‘Biggest partnership’

Nevertheless, analysts say the deal has huge potential. Cantor Fitzgerald Research estimates that Apple could sell 24 million iPhones next year to China Mobile customers alone.

Apple sold 102.4 million iPhones globally in the nine months to September this year.

Previously, China Mobile subscribers have not been able to use Apple’s iPhone, because the firm’s 3G technology was not compatible with Apple handsets.

However, its 4G network will work with the iPhone 5s and 5c.

“This is one of the biggest partnership announcements Apple has made in the past several years,” Manoj Menon, managing director of consulting firm Frost Sullivan, told the BBC.

“It gives them access to more than 10% of the global mobile phone users. It is an incredible growth opportunity for Apple.”

However, he added that in order to fully realise the potential of the deal, Apple may need to introduce even more affordable phone models.

The iPhone 5s and 5c will be available to China Mobile subscribers from 17 January.


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