| BEIJING/SAN FRANCISCO
BEIJING/SAN FRANCISCO Jan 28 Apple Inc
may have to wait a little longer for its watershed moment in
A disappointing March-quarter revenue forecast, coupled with
surprisingly weak holiday iPhone sales, suggest pundits may have
over-estimated initial demand from China Mobile's 700
million-plus subscribers, a key factor that has pushed its
shares 18 percent higher in the fourth quarter.
It raises doubt about the country's appetite for its devices
as well as broader concerns about flagging global demand for
smartphones and tablets.
Apple and China Mobile struck their deal in December, and
iPhones went on sale in January.
The China Mobile deal, which some analysts expected could
boost iPhone sales by as much as 30 million units a year, won't
be the knight in shining armour that Apple needs to maintain
high growth rates, if its own forecasts are anything to go by.
Despite both companies trumping up the deal as a milestone,
the iPhone's lofty price tag - starting at about $740, about a
tenth of the average urban income of $7,600 - insufficient
high-speed 4G wireless coverage, and persistently stiff
competition from local players such as Huawei and
Xiaomi may keep a lid on iPhone sales growth for now.
Would-be iPhone buyers may also be waiting for the next
iteration, which is widely rumored to adopt the larger screens
that Samsung Electronics and other rivals have
proved can be more popular with Asian buyers.
"I don't really expect China Mobile is going to sell a lot
of iPhones this generation. The other carriers have been selling
the device for three months," said CK Lu, a Taipei-based analyst
"But the next generation, if it has a bigger screen, will
have a truly huge impact on the market."
Apple declined to comment for this story.
THE GREAT RAMP
China is one of Apple's few remaining geographical areas for
growth, alongside Latin America and other emerging markets, with
the U.S. and Europe now thoroughly saturated with smartphones.
The company sold 51 million smartphones globally over the
holidays - far fewer than the average 55 million expected. That
underscores Apple's increasing need to secure sales in China, a
market where the majority of mobile users still get by with
cheap feature phones, but where the Cupertino company commands a
paltry 6 percent market share, according to Canalys.
But the market is also a huge unknown. Some analysts fear
that China Mobile may simply end up cannibalizing its rivals,
China Unicom and China Telecom, yielding
little meaningful growth in that market.
China Mobile's "impact remains a key wild card," Bernstein
Research analyst Toni Sacconaghi said. "To us, the key question
is, does China Mobile add new customers for Apple, or simply
migrate existing carriers away from other carriers?"
Jefferies' analyst Peter Misek highlighted that China
Mobile's high-speed 4G mobile networks had only been established
in 16 cities so far, meaning those in other cities would be
relying on a 3G network that is not fully compatible with the
"China Mobile appears to be contributing less than we
expected in the first half," Jefferies' Misek wrote on Monday.
To be sure, the greater China region - which includes Hong
Kong and Taiwan - still made an outsized contribution to Apple's
revenue growth in the first quarter, which ended in December.
Sales in the region leapt 29.5 percent year-on-year, far
outstripping global growth of 5.7 percent.
"We've got quite the ramp in front of us and we're
incredibly excited," CEO Tim Cook told analysts on a Monday
post-results conference call. He said China Mobile's 4G rollout
should encompass more than 300 cities by year's end.
However, the December quarter also represented a full three
months' worth of sales of the new iPhone 5S and iPhone 5C. In
the year-ago quarter, the then-new iPhone 5 only hit store
shelves on Dec. 14.
On Monday, Apple CFO Peter Oppenheimer and Cook argued that
investors should not be too fixated on that sales forecast,
saying underlying demand remained strong.
They explained that the outlook looked softer than expected
because of a strengthening U.S. dollar, rapidly crumbling iPod
sales, and a difference in inventory levels compared with the
same quarter a year earlier that effectively limited sales.
But other analysts surmise that Apple remains priced out.
Its iPhone 5C, which many had hoped would finally grant it an
unassailable foothold in the market, was just $100 cheaper than
the high-end 5S.
On Monday, Cook acknowledged that the glossy 5S, which
sported unique features such as a TouchID fingerprint-sensor,
was garnering much more attention than its plastic-wrapped,
For a bigger bump in revenues, particularly in China, Apple
may have to rely on an iPhone with a bigger screen. Samsung's
Galaxy Note "phablets" are among the better-selling of its
"There's too many moving parts to know exactly. There's no
doubt that shipments are lower than anybody expected," said
Pacific Crest Securities analyst Andy Hargreaves.
"A lot of people got ahead of themselves."