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Apple Clears First Hurdle, Possible iPhone 5 Launch In China Before The Year-End

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In line with Apple’s plans to make this year’s iPhone launch its fastest roll-out ever, the company seems to have received initial regulatory approval to officially launch the iPhone 5 in China. The approval came just three days after the iPhone 5 was launched in the U.S. and eight other countries on September 21.

While this still doesn’t provide a clear indication of when the iPhone 5 will be launched in China, China Unicom seems to be convinced that it can launch the smartphone within the next three months. After China Unicom, the next step for Apple in China would obviously be China Telecom and, in keeping with the Apple tradition of giving each carrier a year’s time with each iteration of the iPhone, we can expect the carrier to launch the iPhone in the Feb-March period.

A China Mobile deal will however remain elusive until both companies work out a deal. How soon that will happen is open to speculation for now. But knowing that the iPhone 5 has a Qualcomm LTE baseband that also supports the 3G network which China Mobile operates, such a deal should not be too far along. This deal is very important for Apple as it can instantly double the iPhone’s current addressable market in China and act as the next big boost to its stock, given that the iPhone accounts for more than 55% of the company’s stock value currently. (see Apple Can Ride China Potential Past $800 With China Mobile?s Support)

See our complete analysis for Apple here

Apple’s China story

The huge opportunity that China presents can be gauged by the fact that the country has already overtaken the U.S. as the world’s largest smartphone market by volume. This is an incredible statistic considering that China is only in the early stages of smartphone adoption. 3G penetration in China stands at only about 18% currently and is growing strongly. Considering the huge 2G subscriber base that the Chinese carriers are looking to upgrade to 3G, the potential for Apple to ride the boom is huge.

This is also borne out by the rapid rate at which Apple’s revenues from China are growing. Revenues from greater China, which includes mainland China, Hong Kong and Taiwan, in the July quarter grew 48% year-over-year and accounted for more than 16% of Apple’s overall revenues. This brought Apple’s FY 2012 first three quarter revenues from the region to $18.1 billion, already 36% over the $13.3 billion in revenues Apple managed to generate from the region during the whole of last fiscal.

As the country grows and the average Chinese sees an increase in buying power, we expect to see a growing shift in demand from 2G to 3G smartphones. The iPhone can help Apple tap this phenomenal growth in demand. Even Apple’s CEO Tim Cook acknowledged the immense potential that China presents when he said during the Q2 earnings call that the country was Apple’s “fastest growing region” by far and that the company was doing everything it could to market its brand in China.

Penetrating China could however mean margin pressures for the company in the longer term, mitigated to an extent by the carrier subsidies. With cheap Android smartphones seeing huge demand and the pricing war gradually dragging prices down to sub-$100 levels, Apple will do well to avoid this segment for as long as it can without sacrificing growth. It therefore bodes well that Apple is only just getting started in China and has ample opportunity to drive sales in the country without having to drop prices anytime soon.

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