Apple, iPhone Need to Branch Out in 2012

by Anthony John Agnello | November 22, 2011 12:30 pm

Apple, iPhone Need to Branch Out in 2012

iPhone4S 185 Apple, iPhone Need to Branch Out in 2012The world’s a much different, bigger place for Apple (NASDAQ:AAPL[1]) here at the close of 2011.

At the beginning of the year, Apple still was bashful about its iPhone business. Sure, the device was snatching up market share, but that didn’t mean it was time to end exclusive carrier agreements around the world. The contracts were up[2], the rumors[3] ran wild, but iPhone stuck by individual carriers around the world. AT&T (NYSE:T[4]) here in the U.S., SoftBank Mobile in Japan, China Unicom (NYSE:CHU[5]) in China, KT Corp. (NYSE:KT[6]) in Korea — in January 2011, Apple was a one-telecom kind of company in many of its biggest markets.

How times change. Verizon (NYSE:VZ[7]) got the iPhone here in February, SK Telecom (NYSE:SKM[8]) in Korea in March, and others continued to join in around the world. When the iPhone 4S released in October, Apple spread around the love even more, coming to Sprint (NYSE:S[9]) and C-Spire, a small carrier largely based in Mississippi. Now, Apple is projected to sell approximately 30 million iPhones[10] over the holiday quarter.

It isn’t enough, though — at least according to Morgan Stanley analyst Katy Huberty’s research. Released to investors on Sunday and detailed in a Monday CNN report, Huberty found that while Apple is, as of 2011′s third quarter, the second-largest smartphone vendor in the world[11], it lags behind its competitors in terms of carrier support. Of the 760 mobile phone carriers identified by Huberty around the world, just 30% carry Apple’s iPhone[12]. Meanwhile, competitor Research in Motion‘s (NASDAQ:RIMM[13]) fading BlackBerry line is supported by 79% of carriers.

If the iPhone is going to continue to grow and retake its lead in market share from Samsung (PINK:SSNLF[14]), it must keep expanding. Huberty singled out Asian markets as the sector Apple must focus on — particularly China, where China Unicom still holds an exclusive grip on iPhone support.

The question at hand: Why hasn’t Apple broadened out to the maximum number of carriers already? Older iPhone models are cheap enough to manufacture at this point that the phone is no longer restricted to consumers with the most disposable income (even if it hasn’t yet reached the real mass-market price point of phones like Nokia’s classic 1100 series).

The answer might be that Apple is waiting for a shift in access to better networks to make its move toward total world domination. Ahead of the iPhone 4S’ release in October, it was heavily rumored that Apple finally would be branching out to China Telecom (NYSE:CHA[15]) and China Mobile (NYSE:CHL[16]), China Unicom’s two biggest competitors. In fact, China Mobile chairman Wang Jianzhou was vocal throughout the year about Apple bringing its wares to his network[17]. It was in September though that Jianzhou more specifically said that his company received “a positive answer” from Apple in response to requests for an iPhone model built for 4G LTE networks[18].

All signs indicate[19] that Apple’s next smartphone due in 2012 will be a significant redesign of the current model, with a new form factor and support for LTE networks. That release likely will mark Apple’s full embrace of all carriers. By 2012, the faster but still-growing LTE networks supported by companies like Verizon in the U.S. and China Mobile abroad will be better established and ready to support an influx of millions of iPhone users.

While larger telecoms with established 4G networks carry the new iPhone 5, Apple will be free to offer budget-priced iPhone models on a variety of smaller carriers with broad 3G network support. This means not just B-list telecoms like T-Mobile USA, but also C-listers like MetroPCS (NYSE:PCS[20]) and Leap Wireless (NASDAQ:LEAP[21]). It’s a scenario that will give Apple maximum penetration while still maintaining the high-end market, and its attendant revenue, that has made it so successful in the space.

Of course, all of this presupposes that consumers’ infatuation with Apple’s phones is maintained into the next year. Considering that the company sold 4 million iPhone 4Ss within three days of releasing the device, it’s a good bet Apple will hold consumer attention for some time to come.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[22] and become a fan of InvestorPlace on Facebook[23].

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. The contracts were up: http://www.engadget.com/2010/05/10/confirmed-apple-and-atandt-signed-five-year-iphone-exclusivity-de/
  3. rumors: http://investorplace.com/2010/03/apple-aapl-iphone-verizon-vz-att-t-vodaphone/
  4. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  5. CHU: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHU
  6. KT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KT
  7. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  8. SKM: http://studio-5.financialcontent.com/investplace/quote?Symbol=SKM
  9. S: http://studio-5.financialcontent.com/investplace/quote?Symbol=S
  10. 30 million iPhones: http://www.mobiledia.com/news/115665.html
  11. second-largest smartphone vendor in the world: http://www.bloomberg.com/news/2011-10-28/samsung-beats-apple-as-no-1-smartphone-vendor.html
  12. just 30% carry Apple’s iPhone: http://tech.fortune.cnn.com/2011/11/21/morgan-stanley-what-iphone-really-needs-is-more-carriers/?iid=HP_LN
  13. RIMM: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIMM
  14. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  15. CHA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHA
  16. CHL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHL
  17. Apple bringing its wares to his network: http://investorplace.com/2011/01/wednesdays-apple-aaplrumors-next-stop-china/
  18. iPhone model built for 4G LTE networks: http://investorplace.com/2011/09/apple-rumors-aapl-china-mobile-4g-iphone/
  19. All signs indicate: http://investorplace.com/2011/10/apple-rumors-4g-iphone-5-2012-iphone-4s-samsung/
  20. PCS: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCS
  21. LEAP: http://studio-5.financialcontent.com/investplace/quote?Symbol=LEAP
  22. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  23. InvestorPlace on Facebook: http://www.facebook.com/pages/InvestorPlace/178906405484848

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