China Mobile Ltd. (ADR) (CHL): Apple Inc. (AAPL) Investors Should Play the Long Game

Expanding distribution
While offering a lower-cost iPhone will give Apple a better chance to compete in emerging markets, it also needs to expand its distribution to capitalize on that opportunity. Thus, another important detail to watch for is whether Apple announces a distribution deal with China Mobile Ltd. (ADR) (NYSE:CHL) at its media event on Wednesday in Beijing.

With 700 million subscribers, China Mobile Ltd. (ADR) (NYSE:CHL) is the single biggest emerging-market opportunity for Apple. Until now, Apple has only partnered with China Mobile Ltd. (ADR) (NYSE:CHL)’s smaller rivals because of technology issues and strategy clashes (China Mobile wants to avoid offering high smartphone subsidies).

Offering a US$349 smartphone in China while simultaneously adding China Mobile Ltd. (ADR) (NYSE:CHL) as a carrier partner would almost certainly spearhead a return to strong growth for Apple in China. It would also help Apple build its brand in second-tier cities where China Mobile Ltd. (ADR) (NYSE:CHL) is the dominant wireless carrier. That could create a beneficial “halo effect” for Apple’s other products. On the flip side, it would also help China Mobile bolster its competitive position in a big way.

Foolish bottom line
The short-term reaction to Apple Inc. (NASDAQ:AAPL)’s iPhone announcement will probably be overly focused on the “wow” factor, or lack thereof. However, for both phones Apple is expected to launch, a big “wow” effect will not necessarily translate into profit. To put it another way, a really cheap iPhone would be a really unprofitable iPhone.

Investors should focus on the long-game instead. To succeed, Apple needs to include meaningful improvements in the iPhone 5S without completely redesigning the iPhone 5. The iPhone 5C needs to be priced at a level that Apple can still earn a healthy margin, especially because it will cannibalize some sales of the more-profitable 5S. Lastly, Apple needs a distribution deal with China Mobile Ltd. (ADR) (NYSE:CHL) to reinvigorate its sales in China. If Apple delivers on all three points, the next year is likely to be much better for Apple shareholders than the last one.

The article Apple Investors Should Play the Long Game originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Apple and is long January 2015 $390 calls on Apple. The Motley Fool recommends Apple and owns shares of Apple and China Mobile.

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