7 Clues Pointing to an Imminent iPhone China Launch

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 |  Includes: AAPL, CHL, CHU
by: Dan Butterfield

Apple’s (NASDAQ:AAPL) iPhone managed to land in Hong Kong last year, but the drive across the Kowloon Toll Road to China is taking a bit longer. Antsy youngsters (media, investors and analysts) in the back seat want to know one thing…

“Are we there yet Uncle Tim (Cook)?” …

Apple CCO Tim Cook: “Um, not quite yet. The view is a bit hazy, but that sorta looks like Beijing. (Pointing East) See over there … It’s just over the horizon.”

Picture 2Okay, I took some poetic license. Tim Cook chooses his words carefully. During Apple’s (AAPL) recent Q3’09 earnings call, Broadpoint.AmTech analyst Brian Marshall asked:

“Tim, any update on the iPhone in China?”

Cook’s response:

“Nothing to add to date specifically, other than it continues to be a priority project and we hope to be there within a year [emphasis mine].”

In other words, it could be tomorrow … or it could be 12 months from now.

Okay… Before a tantrum breaks out in the back-seat, let’s get back to the kids’ most urgent question… When?

Picture 1Just my super wild-ass guess, but I’m now looking for a deal announcement sometime in late summer ’09 and an iPhone launch in the fall of ‘09. What’s the basis for this SWAG? Mostly a game of clue by the bumbling Inspector Clouseau (that would be moi, who previously predicted we’d be launched by now):

apple_unicomClue 1: Multiple different reports and sources lead me to believe that Apple’s negotiations with China Unicom (NYSE:CHU) were successfully concluded in late Spring 2009. You can chalk up the delay in a formal deal announcement to logistics (e.g. testing, licensing process, WCDMA network rollout and new model iPhone build) and perhaps some China telecom industry politics.

Clue 2: Press reports along with some documentary evidence, suggests that a new model iPhone was submitted to China’s authorities for mandatory “testing” sometime in late spring. The MIIT’s testing process can take several months to complete. Foot-dragging by the MIIT might help China’s carriers to deploy their own Android-based (NASDAQ:GOOG) phones + new WVAS + new mobile operating systems before iPhone is launched.

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crystal-liu-pic-0014Clue 3: Multiple reports that Foxconn (Hon Hai Precision) will soon begin full production of a custom iPhone for China. This model will not have WiFi (due to WAPI/WiFi issues) but will likely come preloaded with several “for China” apps. Foxconn has given this iPhone a code name – “Model 90.” There is a very high probability that Model 90 is the same “yet to be unveiled” iPhone model (A1324) that China granted (in early June) a Radio Transmission Equipment Type Approval Certificate (RTETAC). This new iPhone is still pending the mission-critical Network Access License (NAL).

Clue 4: Initial production of Model 90 was confirmed in a tragic and highly unusual fashion – the July 16 suicide of a Foxconn worker charged with the responsibility of shipping 16 “Model 90” prototypes to Apple. One of the “Model 90” prototypes went missing (circa July 10) and this led to a very unfortunate chain of events that ended quite tragically. Many other bloggers and journalists have weighed in on this story, so I won’t delve into it any further here.

3609103536_3e314978d8Clue 5: Another reason why an iPhone launch might need to be pushed to Fall of ’09 is “manufacturing constraints.” That’s analyst speak for they can’t build ‘em fast enough to meet robust demand. Apple’s manufacturing partner, Foxconn (Hon Hai Precision) is now committing substantial resources to build iPhone 3GS, and this may take priority over production lines for the new model for China.

Clue 6: While China Unicom’s WCDMA 3G network was successfully launched on May 17, it will take several months before service is fully deployed. China Unicom rolled out the first 55 cities on May 17. On June 30, China Unicom announced the rollout to an additional 44 cities. All major cities should be lit-up by September/October with blanket WCDMA 3G coverage by year-end (284 cities).

Clue 7: China Mobile (NYSE:CHL) and China Unicom will launch their first proprietary Android-based phones (OPhones/UPhones respectively) + their new mobile OS and enhanced wireless value-added services (WVAS) circa August/September ‘09. China’s carriers may want to have their own “answer to iPhone” ready by the time the MIIT grants iPhone its NAL. In case you’re wondering … yes, China Unicom will be in “coop-it-ition” (cooperation + competition) with Apple. They want iPhone to “go huge” to bring in new subscribers, but they also desire new product/service offerings of their own.

To sum up: logistics and politics may push the iPhone deal announcement out to late summer with a launch in China coming sometime in the fall. But it will happen this year! So says Inspector Clouseau.

Full disclosure: Dan Butterfield is an AAPL shareholder, is not associated with any member firm and does not offer investment advice.