China Mobile Limited (CHL - Snapshot Report), the largest wireless carrier in the world by subscriber base, intends to sell 100 million mobile phones in 2013 with almost 80% of it in smartphones. This indicates a remarkable improvement of 25% over 2012 expected sales of 70-80 million units. A potential deal with the world’s second largest smartphone manufacturer Apple Inc. (AAPL - Analyst Report) can be attributable for the raised guidance.
China Mobile covers more than half of the Chinese mobile market with a subscriber base of 698.51 million at the end of third quarter 2012. Nevertheless, the company’s 3G customers comprise only 11% (75.6 million) of its huge subscriber base.
Two of its closest rivals – China Unicom Limited (CHU - Analyst Report) and ChinaTelecom Corp. (CHA - Snapshot Report) – with subscriber base of 229.49 million and 152.62 million, respectively, lags far behind but have far better 3G customer concentration than China Mobile. This provides China Mobile a significant opportunity to tap this under penetrated 3G market.
China Mobile’s biggest flaw is that it offers mobile service based on Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) technology, which is not very well supported by the handset makers includingApple Inc.’s iPhone, resulting in lower upload/download speed. However, the competitors like China Unicom and China Telecom offer their services through globally acknowledged Wide Band Code Division Multiple Access (WCDMA) technology.
With nearly a billion cell phone users, China Mobile offers a huge smartphone market, which is still being dominated by Google Inc.’s Android operating system (OS) and Apple’s iOS comes at a distant second place.
The company has been in talks with Apple for quite some time in order to develop a TD-SCDMA iPhone, although nothing has been finalized yet. We believe China Mobile has to strike a deal with Apple sooner rather than later to have any realistic chance of achieving its 2013 smartphone sales target.
China Mobile currently has a Zacks #2 Rank, implying a short-term Buy rating.