Apple deal shows power is shifting East; It has been clear that Apple needed China Mobile more than the other way around

December 25, 2013 Leave a comment

Apple deal shows power is shifting East

It has been clear that Apple needed China Mobile more than the other way around

By Telegraph staff

5:37PM GMT 23 Dec 2013

After a year which, if not exactly an annus horribilis, has certainly presented its first share of challenges, Christmas came a few days early for Tim Cook, Apple’s chief executive. The iPhone distribution deal he has signed with China Mobile should spur yet another growth spurt for the world’s most valuable technology company.The total value of the smartphone market in China is $80bn (£49bn). At the moment, Apple’s share of total sales is a paltry 5pc and it lags significantly behind arch-rival Samsung, which has been in Beijing since 1985.

Analysts estimate that, after China Mobile makes the iPhone available to its customers on January 17, it will mean up to 30m extra sales for Apple next year. Given an average selling price of $580, Mr Cook can look forward to as much as $17bn in extra revenues.

With one deal, turnover should jump to roughly match that of Samsung in the mobile hardware business – a stellar achievement for laser-focused Apple. By contrast, the Korean giant’s $187bn revenues are fuelled by dozens more products such as batteries, washing machines and microchips.

It is also one in the eye for Google, whose free smartphone operating system, Android, is used by hundreds of millions of Chinese. Most do not use the Google apps and Play Store, however, so are of limited value to Google.

Such is the scale of China Mobile that it has the weight to shift the global smartphone battlefield. Serving 760m Chinese, it operates on a scale nearly seven times larger than Verizon Wireless, America’s biggest mobile provider. It will build 500,000 4G mobile broadband base stations by the end of 2014; the 4G-enabled iPhone will help China Mobile sell this more expensive new service.

It has been clear that Apple needed China Mobile more than the other way around, though. Mr Cook worked hard to do the deal, jetting back and forth to Beijing and bowing to state pressure with a public apology and a promise to improve customer service in China.

Angela Ahrendts, the Burberry chief executive poached in October to run Apple’s retail stores, is doubtless hard at work on a major expansion in Chinese shopping centres to deliver a smoother experience at the new scale the company will enjoy.

Apple does not work with Western mobile networks in such a flexible way. They are forced to agree to stringent marketing terms, including paying for Apple TV advertising in order sell the iPhone; China Mobile will not be.

Apple’s willingness to change its way of working to do business with China Mobile is a further sign – if one was needed – that power in technology is heading East. Expect more of the same as China’s gadget makers and software companies also becoming increasingly influential.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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