Apple's iPhone to Capture Chinese Internet Market

In a revealing interview with Kai-Fu Lee, President of Google (GOOG) China, PBS's Margaret Warner extracted some valuable information regarding the Chinese Internet explosion.  Lee predicts that a quarter of China's 1.3 billion people will be online by year's end. 

They're not just more numerous than in the United States.  They're different.  The average American user is 45 while the average Chinese user is 25.  Even though the Chinese economy is rapidly increasing the size of the middle class, these young users still don't own their own computers.  Internet cafes are open 24 hours a day and for most of those 24 hours they are packed with young customers engrossed in games, movies, music videos, and chat rooms.

The Chinese are craving an inexpensive Internet device to further liberate their access to information, entertainment, and communication.  Perhaps an alternative to the western world's use of laptop computers will fuel a revolutionary wave of Chinese gadget obsession. 

They love their gadgets.  Before the government intervened with the China Mobile monopoly, the company reported 574 million mobile subscribers back in March; the number of mobile subscribers is expected to grow to 738 million by 2010.  To put that number in proper perspective consider that the entire US population is just over 300 million.  Capturing the Chinese market is the prize of all prizes.  

To win the Chinese prize one must cater to the Internet demand of the young Chinese but do so on a culturally accepted platform.  Computer ownership is not culturally accepted.  Cellphone ownership is.  That's where Apple's (AAPL) new 3G iPhone comes in.  Back on May 24th Chinese officials announced their intention to issue three licenses for mobile phone 3G technology and they promised to provide 3G services for the Olympic Games in August.  Investors must be careful not to throw a pending agreement between Apple and China in with the rest of the international batch. 

China is different.  The inexpensive iPhone caters to the hundreds of millions of people who will trade in their current cellphones for their first ever opportunity of owning a mini-computer.  The iPhone launch in China represents the most significant technological product release of our generation; not only financially for Apple but culturally for China as 7 out of every 8 households goes without a computer.  Will Apple bite the bullet and advertise the iPhone as a laptop alternative in China?  We'll see. 

Following Steve Jobs' introduction of the 3G iPhone, he clearly stated that he sees China and Russia iPhone distribution deals being completed by year end.  This is the ultimate catalyst for investors looking to buy stock of a company which can overcome the broad market weakness caused by high oil, troubled financials, and declining real estate.  The Chinese iPhone sales will help drive Apple stock to $300 a share in 2009.  We are in a stock pickers environment where high growth will be rewarded.  Buy AAPL ahead of the finalized Apple-China mobile agreement. 

Disclosure: Long AAPL.

Comments

[Toni]

"Following Steve Jobs' introduction of the 3G iPhone, he clearly stated that he sees China and Russia iPhone distribution deals being completed by year end."

Exactly, so nothing new today.

Certainly nothing to deserve the title in the article.

"The Chinese iPhone sales will help drive Apple stock to $300 a share in 2009"

For now the stock is at a lot less then 200. And you don't have the slightest idea what price could be in 2009.

[Rantadude]

With today's share price above $180 as I write this, I agree that China will be a huge opportunity for Apple. And with over 70 other countries signing on to sell the iPhone, I believe that the share price will approach $300 a share before China & Russia deals are signed. I enjoyed your reasoning.

[BS Detector]

Ah, Toni, ever smug and self-satisfied. Have you ever written anything positive about anything or anybody?

How sad your life must be.

[Toni]

Doris satisfy me. That's positive.

[sbjforever]

With Apple's price at circa $180, buying the stock ahead of a China Mobile deal is a headless no-brainer.

[wallawallabingbang]

Toni's depth of thought goes only as far as one or two snide wisecracks. Exactly the kind of guy who never sat in front during class. Maybe on the short bus...

seekingalpha.com/user/...

[MightBuyOneNow]

This is right on! I was on a discussion forum many weeks back where a fellow from Mexico described the same premise from a personal experience. It's tough for us to really understand that in some countries "computers in the home" is strange concept. Once we get that, this article is bang on about what that means to iPhone sales and why a China deal will be such huge catalyst to the stock price.

[wallawallabingbang]

Those of us who read in a cross-cultural way realize that there are customs and conventions in other countries that don't necessarily mirror either our approaches or sensibilities.

Such is the case with 'cafe computing' that occurs, say, in the equivalent of a Starbucks in India. Though the Indian cafe may be a far humbler place, I wouldn't make the mistake of generalizing that Indians or Chinese don't have a desire, opportunity, or wherewithal to be interconnected via a convenient handheld platform like the iPhone.

If you can't imagine this universal desire, you might do well to talk to folks from other countries and read a bit more widely.

[FreeRange]

As a frequent traveler to China I can attest that this article is spot on. And adding games to the phone will be an even greater driver as the Chinese are absolutely nuts about gaming! As an aside, my mother-in-law is here visiting from China. She and her best friends are all retired and living on relatively small pensions. But they all plan to get an iPhone when launched there! (They all wanted her to pick one up for them while she's here but unfortunately she leaves tomorrow.) So old and young alike will be advancing the cause! One problem in China though is that 3G is not there yet, but that won't stop the iPhone demand, as internet access is already relatively slow compared to the rest of the world so not as great a factor.

[Camden]

Toni,
I agree the headline is a bit of extreme hyperbole. Jason is a stock market enthusiast and believes Apple's currently kicking butt. He thinks the iPhone will be for sale in China soon and those sales will accelerate investor demand. What's wrong with him making a prediction on the future stock price? I suggest you lighten up.

[samij]

hype hype hype...

firstly, chinese 3g networks will only begin to emerge in 2009, and even then in some central areas of the few largest cities.

secondly, dont let the $199 hype distract you, iphone with $70/month subscription is nothing near affordable for the mass of chinese population.

apple may sell a few iphones in china in 2009 but nothing in the amounts that would be needed to have any significant effect on the stock price.

[wallawallabingbang]

Toni suffers from the 'closed-mind' syndrome.

[wallawallabingbang]

Apple will be there in China at the Olympics to sell iPhones and computers hand over fist. The weak dollar virtually ensures that.

[Toni]

Camden, thank you for the suggestion. But I'm quite light already, as the back of wallawallawhatever can confirm.

[wallawallabingbang]

I see you aren't capable of investment-related discourse, so whomever monitors this MB should get you off of it.

[wallawallabingbang]

Wasn't directed at you, but if the shoe fits...

[wallawallabingbang]

Anyone foolish enough to pick it up and run off with the mouth over it, thx.

[wallawallabingbang]

Hilarious.

[Lavrentii]

Please, this "Toni" aka "Doris" character has just ruined Eric Savitz's blog at Barrons. I rarely visit that blog any more. Don't let this person infect this good site with what you are seeing today. Somebody do something.

Ignore for now.

[wallawallabingbang]

Click 'Report Abuse'.

[wallawallabingbang]

I too have witnessed the damage this 'Toni' fellow has caused at Barron's, which used to be readable and informative.

[KenC]

EDGE is very good in China. As fast as many home DSL networks, as DSL stinks in China, because landline connections stink. That's why everyone is wireless!

As far as people being able to afford the iPhone. I read that 1/4 of the cellphone market in China is for handsets averaging $500. Honestly, the first time I walked into a Chinese Mobile store, I was shocked at the prices. They're not subsidized.

There was also a report by InStat-Asia, yesterday that stated there are already 1M unlocked iPhones in use in China.

People will absolutely use the iPhone as an internet device, as most people do not have laptops or PCs in the home, but they all have cellphones.

[reagan]

Everyone should just ignore Toni. The guy is just a negative jerk.

[pabs]

there is so much nonsense written by supposedly credible sources its refreshing to find real news and an independent opinion as opposed to simply reporting on someone else's report, fabricating stupid headlines or promoting propaganda to suit an agenda
ok i feel better for getting that off my chest.

article make a truly compelling observation about the key factors that will drive chinese consumers to the iphone and absolutely the best reason to go long since its introduction
the stock at 180 is a steal, i agree 300 in 09
thanks

[wallawallabingbang]

appleforever, I'm not sure it's your business, unless you want an argument.

[wallawallabingbang]

Not sue it's a good idea to fiddle with someone's ID.

[wallawallabingbang]

wallawallabingBONG is Toni, folks.

[FTC]

The only thing I see wrong with this article is that you need to own a computer to get the updates from Apple and new functionality. The iPhone is fed thru iTunes which runs on a computer.

[AMT]

Wifiguy, you're mistaken. The IPhone updates and applications will be fed through the Apple Ap Store wirelessly once it gets up. You won't need a computer to download, hence the IPhone should be even more valuable to those who don't own one and want to surf seamlessly -- and play games, use multiple applications, etc. China should be an extraordinary market for what is the best and most advanced mobile platform yet conceived and bound to get better and better over time.

[Brewer]

Not only will this be a grand slam for Apple WRT the iPhone, guess what COMPUTER they will buy when they do get one for home use?

[mollytjm]

i suggest we ignore the guy who, though he changed his name, is still posting inane space junk. Apple has no debt, lots of $$$$, smart people, innovation, great technology support, top rated products... and as it expends into the world market, obviously it will be a great long term investment. nothing is immune to the insanity of the financial insitutions and what they do to the market. Apple will prove to be a great safe harbor.

[Partners in Grime]

The App Store makes it too easy to add games to one's iPhone or iPod touch. I just spent a hundred bucks and I barely got started, although I picked Netter's Anatomy which set me back 40 bucks on its own. :)

[LBH]

With the possible/probable mandated disabling of Wifi on the China version and the dearth of credit cards able to buy out of country applications on i-tunes I don't see this as being anything that will bump Apple's stock by 33%. And while most of the Internet crowd is young, they are also not affluent. The vast majority of users surf in Internet cafes and most make less than 400USD a month. The great majority of the 800 million cellphones sold here are in the $70-100 range because of what Ken C said above....3-G just got off the ground here in Guangzhou and people are complaining about poor quality...It is bound to get better, but it will be a while. Apple computers are scarce here because software is so expensive and hard to get....Hong Kong is where I have to go to get reliable products and good service. The Chinese do not like to buy things they know they cannot readily return or have repaired and they don't trust the authenticity of scarce brands.

I am anxious to see how this plays out...