Money Matters - Simplified

Is China the iPhone's Next Growth Engine?

 Apple  (Nasdaq: AAPL) not only straddles the burgeoning tablet and smartphone markets but also holds sway across the computer, home-entertainment, and media fields. The moves it makes can affect the future of hundreds of companies. With that in mind, we're taking a look at the week in Apple news, to see how its latest activity influences the Cupertino giant, its suppliers, and even its competitors.

 

 China catches iPhone fever

With the iPhone's U.S. market share stagnating as the phone reaches a saturation point with AT&T (NYSE: T), international growth has been propelling the phone forward. That growth has been especially strong in other developed countries. Quoting from a previous article I've written on the subject:

In Canada, where five different carriers sell the iPhone, Apple's share of the mobile market is around 12.4%. In France, where France Telecom's Orange and two other carriers sell the iPhone, its mobile market share reaches 11.6%. In the United Kingdom, where six carriers sell the iPhone, Apple commands 10% of the market.

In contrast, Apple's mobile market share in the U.S. is just 6.5%.

However, another nascent opportunity beyond developed countries is developing nations that are adopting smartphones in greater amounts than originally expected. In China, despite being on China Unicom (NYSE: CHU) , the nation's second-largest carrier with only 20% the subscribers of leader China Mobile (NYSE: CHL), there are now more than a million contract users of Apple's iPhone.

Considering that China Unicom is notorious for having bad service, which has kept many users from buying an iPhone or resorting to gray-market models (remind anyone else of the iPhone situation in another country?), hitting a million contract users is very impressive. So what's stopping Apple from expanding to China Mobile? The main sticking point is probably China Mobile's network. China Mobile uses a CDMA standard that was specially created within China, requiring Apple to create a separate model (with different communications chips inside) to work on China Mobile's network.

Apple has been reluctant to create separate models in the past, but its virtually assured jump to Verizon (NYSE: VZ) in the United States illustrates a new pragmatism within the company. Although multiple models can be confusing to consumers, the market opportunity is just too massive to pass up on.

With some analysts going so far as predicting that China has a market for 100 million high-end smartphone buyers (a target that's probably a bit too high right now), there's no denying the vast potential in the country. U.S. smartphone penetration rates are still around 30%, and growth rates will begin slowing in the next few years, as a saturation point hits and those still without smartphones are unwilling to pay the extra monthly data fees that are required with advanced phones. That leaves areas such as China, India, and Latin America as key growth engines to replace a developing-country slowdown. A million contract users pales in comparison with other countries, but it also illustrates the potential that can be unlocked if or when the iPhone bolts to China Mobile.

Everybody gets an iPad!
Yes, it was finally Apple's chance for the vaunted Oprah Moment: The host gave every member of her studio audience an iPad on a recent show. Not only that, but Oprah Winfrey showered on the praise, calling the iPad her "No. 1 favorite thing ever."

I know an appearance on Oprah's show might sound banal, but investors should take note. With the iPad hitting production figures that reportedly are north of 2 million a month, and with goals of further expansion, effectively selling the iPad across all demographics is crucial to its continuing outsized success. And while the buying whims of 50-year-old women might not be my forte, I have a pretty good inclination that they're less likely to buy an iPad than an already iPhone-toting, Engadget-reading 20-something is.

In other shopping news, initial holiday spending surveys are almost looking too good for Apple. A survey from Changewave Research shows that 36% of planned laptop buyers planning on buying a Mac. Considering that Apple's laptops sell for a premium over main competitors Hewlett Packard (NYSE: HPQ) and Dell (Nasdaq: DELL), that would give Apple a majority of total dollar spending on computers this holiday season. That seems a little too good to be true for Apple investors, but along with evidence from other surveys and information, it looks as if the "halo effect" of associated products such as the iPhone and iPad is propelling Mac sales and market share to record-shattering levels this quarter.

© 2010 UCLICK L.L.C.