Editor's Note: This content was originally published on Benzinga.com
by Tim Parker.
Wednesday, Benzinga reported that Apple
(NASDAQ:AAPL) and China Mobile
(NYSE:CHL) might be close to a deal and while these rumors have surfaced in the past, this time it looked like the real thing.
Later Wednesday, this story gained more momentum as two stories excited investors even more.
First, Want China Times
reported that the iPhone 5S and the lower cost iPhone 5C may adopt Qualcomm's
(NASDAQ:QCOM) TD-SCDMA chipset. In the past, Apple products weren’t able to run on China Mobile’s proprietary network because its phones lacked the technology. If this story is true, the barrier to entry into that market will now be gone and a deal between the two tech giants is not only probable, but the companies won’t have to wait for new hardware to be developed to monetize the partnership.
According to the article, the iPhone 5S will cost around $915 in China while the 5C will be considerably cheaper at $555. Each is said to launch in China on November 28 and if the Apple/China Mobile deal happens, China Mobile could account for 25 to 35 percent of shipments.
Tuesday, our firm reported that a deal with China Mobile could be worth as much as $50 billion to Apple
If the market was looking for another reason to price the deal into the stock, UBS analysts Steven Milunovich and Peter Christiansen released a note raising Apple’s price target from $500 to $560. The primary reason for the price target change along with a boost in 2014 earnings from $42.29 to $44.65 was the upcoming iPhone 5C.
Milunovich and Christiansen believe that the deal with China Mobile will happen and that the 5C will be a major revenue driver in the country. They see a 38% gross margin. They said in the report, "We estimate the iPhone opportunity in China is at least one-third the total 3G subscriber base or over 100 [million] users."
They estimate that Apple will sell 17 million phones through China Mobile with 70% being the 5C.
Additionally, they believe that Carl Icahn will be unsuccessful in pushing the company to increase its share buyback program although it could “easily fund”
a $30 billion increase.
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Tim Parker is long AAPL.
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