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AAPL: Apple Should Bear Fruit on Chinese Soil … For a While

The maker of the iPhone, iPad and MacBooks just opened a huge door in China, but the deal has an expiration date

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It’s no secret that Apple (AAPL) wants to develop a strong presence in the Chinese consumer market. But it’s unlikely that anyone would have foreseen the approach Apple decided to take in its effort to penetrate that market of 1.2 billion potential customers. As of last week, Apple’s iPads, iPhones and MacBooks are available through a third-party store at an Alibaba online mall — called Tmall — that targets the very Chinese consumers AAPL has had in its sites for a

For those who know Apple well, it’s an odd decision in that AAPL traditionally has been meticulous about how its products are sold. Apple prefers to control the entire sales process, a la its retail stores, but barring that, its telecom partners will do.

But to entirely turn the keys over to someone else (a 100% online retailer, no less) is new territory that might raise a few eyebrows.

Is it a good idea, all in the name of boosting AAPL stock by capitalizing on China’s growing mobile-oriented market? Not necessarily, but to fully answer the question, one has to take a step back and look at Apple’s bigger China strategy.

A Market Worth Apple’s Effort

Just for the record, Apple was already positioned to gain a decent foothold in China. Near the end of last year, the world’s most notorious smartphone maker finally hammered out a deal with China Mobile (CHL) that added the iPhone the the carrier’s menu of phones it offered customers.

It’s a big deal because China Mobile is China’s largest cell phone service provider, boasting a customer base of 760 million. For comparison, there are 240 million mobile subscribers in the United States, and a little more than half of the mobile phones being used are smartphones. China already has 246 million smartphone users, so the growth prospects there spell big opportunity for AAPL stock.

Although the iPhone was already available through China’s other two major carriers, China Telecom (CHA) and China Unicom (CHU), CHA and CHU only have 433 million wireless customers between them. China Mobile was the proverbial big Kahuna in China, and should drive a noticeable bump in China’s iPhone sales when the carrier makes them available beginning on Jan. 17.

But AAPL wasn’t solely relying on China’s wireless carriers to open up the market.

While AT&T (T) and Verizon (VZ) struggle to keep iPhones in stock due to strong consumer demand for the iconic brand, Apple mania doesn’t quite exist in China the way it does in the U.S. There are too many other well-liked brands there, like the market-leading Samsung. Lenovo holds the No. 2 spot in China, and Apple is third with a market share of 12% as of October.

To stir up demand from the consumer side of things, Apple has opened 10 retail stores in China, the latest of which just opened Friday in Beijing’s Chaoyang District.

The “pushing” strategy through AAPL’s own direct retail efforts in China, in addition to the “pulling” effort supplied by China Unicom and China Telecom, have basically worked, too. Sales of mobile devices in China, Hong Kong and Taiwan now account for 15% of Apple’s total revenue, whereas the region only drove about half that proportion a few years ago.

The addition of China Mobile as a partner is expected by some to add sales of an extra 15 million to 20 million iPhones this year alone (vs. an annual pace of about 23 million through China Unicom and China Telecom), bringing Apple’s market share of China’s smartphone market to about a third of the total 240,000 million smartphone users. That’s big, but not an unreasonable outlook judging from the response to the iPhone in Japan, where Apple owns about a third of the smaller nation’s smartphone market.

AAPL Out of Big Partner Prospects

With all of that being said, getting China Mobile on board is a bittersweet milestone for Apple and its investors.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC