China Mobile (NYSE:CHL) had its second strongest month of new 4G users since it implemented this technology in February 2014. It added 24.8 million 4G subscribers, second only to its December 2015's 25 million, which has generated the largest two month total of 48.1 million the company has experienced. It now has 360.4 million 4G users, an increase of 192% year over year, which is 43.4% of its 831.3 million users.
China Mobile also experienced its strongest 3G and 4G month-to-month unit growth in over a year. It added 19 million vs. an average of just under 13 million for the second half of 2015 and the highest since December 2014's 22.4 million net new customers. It did lose or convert to 4G 5.8 million 3G customers but that is the lowest in the past six months. Its 3G and 4G user base is now 517.5 million or 62% of its 831.3 million users, which also means that at some point in 2016 the 4G adds and growth rates will slow. I have developed a Google Doc with monthly data for China Mobile, China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) available via this link going back to June 2009.
China accounts for the bulk of Apple's revenue growth
The growth of China Mobile's 4G customer base is an indication that Morgan Stanley's AlphaWise Tracker showing strength in China and iPhone demand of 56.5 million in the March quarter could be achieved. China accounted for 23%, 41% and 53% of Apple's (NASDAQ:AAPL) total revenue growth the past three fiscal years, respectively, and 70% of the company's revenue growth in the December quarter year-over-year so keeping an eye on what's happening in China is important to estimating Apple's results.
China Unicom changed how it reports its mobile subscribers starting with January 2016. It is now reporting 4G users by themselves and not adding 3G users to the total. For the first two months of 2016 the company added more than 5 million new 4G users each month for a total of 54.8 million of its 257.8 million total subscribers.
China has the second highest operating margins
If you need another reason to keep an eye on Apple's China business it is due to it having the second highest operating margin after Japan (41.2% vs. 46.7%) for Apple and it generates the second highest operating margin dollars at $7.6 vs. $10 billion in North America in the December quarter. Tim Cook said that China will become Apple's largest market and if current trends hold up it will be its largest operating profit contributor before it captures the revenue title. For a deep dive into each geography's operating margins this is a note I wrote on them.
This chart from Apple shows the reported and constant currency revenues for its various geographies in the December quarter.
China could contribute more than forecast for the March quarter
When I estimate Apple's total March quarter revenue of $51.5 billion, the mid-point of its $50 to $53 billion guidance, by projecting each of its five geographies revenue I come up with negative quarter-to-quarter revenue growth in the March quarter for China. At $16 billion vs. $18.4 billion in the December quarter this would be the first quarter-to-quarter revenue decline in China since the March 2011 quarter.
However, if China's three wireless providers, China Mobile, China Telecom and China Unicom, can continue to post strong 4G user growth and Apple gets a revenue kicker from its new China stores, my projection for the March quarter could be on the low side. It may be possible for the company to eke out a sequential revenue increase in China, which would make March quarter's revenue above management's high-end of guidance.
Disclosure: I am/we are long AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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