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Apple, China Mobile Sign Deal to Offer iPhone

Tie-Up Would Give Apple Access to 700 Million Subscribers

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By LORRAINE LUK and DAISUKE WAKABAYASHI CONNECT

Updated Dec. 4, 2013 9:02 p.m. ET

China Mobile Ltd. 0941.HK +0.71% has signed a long-awaited deal with Apple Inc. AAPL -0.23% to offer iPhones on its network, a person familiar with the situation said, an arrangement that would give the U.S. technology giant a big boost in the world's largest mobile market.

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A deal with China Mobile would give Apple access to a subscriber base that is seven times the size of Verizon Wireless, the U.S.'s largest carrier. Bloomberg

The rollout of iPhones on the world's largest mobile carrier by users, with over 700 million subscribers, is expected to start later this month, around the time of a Dec. 18 China Mobile conference in Guangzhou, according to two people familiar with the carrier's plans. China Mobile is one of the world's last major carriers that doesn't offer the iPhone.

At the Dec. 18 event, China Mobile plans to unveil a brand for its fourth-generation, or 4G, network. China Mobile executives have said they would only begin to sell the iPhone after introducing 4G services. China's Ministry of Industry and Information Technology said Wednesday it gave licenses to China Mobile and its smaller rivals to operate the higher-speed mobile networks, clearing one of the last hurdles.

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An Apple spokeswoman declined to comment.

A deal with China Mobile would give Apple access to a subscriber base that is seven times the size of Verizon Wireless, the U.S.'s largest carrier. Greater China, including Hong Kong and Taiwan, is Apple's third biggest market after the U.S. and Europe in terms of revenue.

But Apple has struggled to gain market share in China in smartphones amid competition from lower-cost rivals. The Chinese market presents a major growth opportunity for Apple at a time when its revenue growth has slowed in the U.S.

Research firm Trefis said China Mobile may sell about 1.5 million iPhones per month, racking up almost 20 million additional iPhone activations in 2014. An additional 20 million iPhones would represent a 17% increase from Apple's unit sales of handsets in the fiscal year that ended Sept. 28.

China Mobile has been in talks with Apple to offer iPhones for several years. But Apple had been reluctant to bring the iPhone to the carrier's unique and relatively unreliable 3G network. In addition, China Mobile had bristled at Apple's insistence on sales volume guarantees.

The Journal reported in September that Apple was preparing to ship its new iPhone 5S and 5C models to China Mobile in a sign that the two sides were moving closer to an agreement.

Using different 3G technology, smaller rival China Unicom Hong Kong Ltd. has offered iPhones since 2009 and China Telecom Corp. began selling iPhones in 2012. But their subscriber bases are smaller than China Mobile's. About a quarter of China Mobile's subscribers are on its 3G network with the rest still on an older second-generation network.

Analysts said Apple has become more eager to tap into China Mobile's big pool of potential iPhone buyers to keep pace with global handset leader Samsung Electronics Co. 005930.SE +0.56%

According to market researcher Gartner, Samsung shipped 32.1% of smartphones world-wide in the third quarter, unchanged from a year earlier. In the same period, Apple's market share fell to 12.1% from 14.3%. Apple's share is expected to grow in the fourth quarter because of the introduction of its new iPhones in mid-September.

Samsung is also the largest smartphone vendor in China, with a 21% market share in the third quarter, compared with Apple's 6% share, according to research firm Canalys.

Mizuho Securities analyst Marvin Lo said China is a very attractive market to handset makers as its smartphone penetration is lower than places like the U.S.

Mr. Lo said China Mobile has the country's wealthiest subscriber base. He estimated that at least 10% of China Mobile's subscribers would be potential iPhone customers.

Write to Lorraine Luk at lorraine.luk@wsj.com and Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com

Three reasons Apple will have a big 2014: Pro

Published: Tuesday, 3 Dec 2013 | 1:26 PM ET

By: Cadie Thompson | Technology Reporter, CNBC.com

UBS analyst upgrades Apple

Tuesday, 3 Dec 2013 | 10:20 AM ET

Steve Milunovich, UBS technology strategist, upgraded Apple to "buy," and raised his price target on the stock. He explains his upgrade, and why concern about the cloud may keep cloud computing vendors under pressure.

Apple's stock has taken a lot of hits this year. But the company is set for a big comeback in 2014, said Steve Milunovich, a technology analyst at UBS who upgraded his price target on the company's stock from $540 to $650 on Tuesday.

"We have more confidence going into the new year that margins are going to be flat to up, which were down last year," Milunovich said. "We also have increasing confidence in new product categories."

Here are three things the company is doing to spur growth next year, according to Milunovich.

1. Services

Apple is making moves to cash in on different services and it has been buying smaller companies to help it in that area, Milunovich said, who also upgraded his rating to "buy" from "neutral" on Tuesday.

On Monday, for example, the company confirmed that it acquired Topsy Labs, a social media analytics company.

"They are looking for new technologies, and perhaps technologies like the Topsy acquisition that maybe helps their services side," Milunovich said. "We continue to think of Apple as primarily a device company, but I think they are potentially looking to monetize services, some of those acquisitions fit into that (category)."

2. New products

Other recent acquisitions Apple has made also hint the company has new products coming soon, Milunovich said.

Last month, Apple bought PrimeSense, a company that specializes in 3-D sensor technology, which basically means it creates the tech for gesture control on devices. This sort of technology hints that Apple may be working on a "gamebox" or "TV type product," Milunovich said.

"We have increasing confidence in new product categories," Milunovich said. "I think it suggests innovation is not dead at Apple. We don't know exactly what they are going to introduce over the next 12 months, but we do think you are going to see some new products that will get investors a bit more excited again."

Another area Milunovich said he sees Apple making inroads in is mobile payments. The company is working on iBeacons, which is basically technology that enables an in-store GPS so that stores can know where your phone is in relation to an item on a shelf and recognizes the user's history.

"It's not clear how Apple is going to monetize this but they could get into the payment stream longer term. At the least it means you may prefer their phone over a competitors," he said.

3. China Mobile

Apple is also going to expand its presence in Asia during the next year, starting with the growing possibility of finally striking a deal with China Mobile, Milunovich said.

He said that UBS increased its iPhone sales estimates by 5 million and said that it expects a deal between Apple and China Mobile will be made in the next few weeks.

"We've been expecting for awhile that China Mobile would start to support the iPhone," he said. "I wouldn't go crazy on that because China Mobile still has a limit to how much it can subsidize, but obviously there is a lot of room for growth for Apple in China."

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Three reasons Apple will have a big 2014: Pro

1. Services

2. New products

3. China Mobile