An untapped market for Apple

Most Asian carriers still don't carry the iPhone.

By Motley Fool Pick of the Day Nov 25, 2011 12:21PM

Image: Businessman in China (© Brooklyn Production/Corbis)By Evan Niu (TMFNewCow)


With as much growth and popularity that Apple's (AAPL) iPhone has seen, would you believe that there's still incredible room for even more upside in the years to come?


As Apple's most important business segment and biggest cash cow -- 43.4% of revenue last year -- all eyes are on where iPhone fever will spread next. Recent analysis from Morgan Stanley analyst Katy Huberty shows there's still plenty of money on the table.


As the company has expanded its carrier partnerships beyond AT&T's (T) initial exclusivity, it has exploded iPhone unit sales from 11.6 million in fiscal 2008 (the first full year of iPhone sales) to 72.2 million in fiscal 2011. Apple's carrier list now counts 230 carriers in 105 countries, including Sprint Nextel (S) and Verizon (VZ) in the United States.


Asia is the next frontier for the iPhone.


China represents an enormous opportunity once China Mobile (CHL) joins China Unicom (CHU) as an official carrier. The iPhone 4S has yet to make an official debut, although it draws near, as it has just recently passed regulatory muster. That hasn't stopped ambitious resellers from sneaking the devices into the country early and selling them for upwards of $2,000.


Beyond just China, Huberty indicates that 78% of Asian carriers have yet to offer the iPhone, representing 67% of the geography's subscriber base. Those between ages 25 and 34 see the highest smartphone penetration, and Asia has 655 million people in that category, or 10% of the world's population.


On the flipside, she also notes that a large proportion, around 69%, of mobile subscribers in emerging markets tend to be prepaid. This proves to be a challenge, as the vast majority of iPhone buyers rely on carrier subsidies and service contracts to cover the majority of the iPhone's hefty retail price tag, which now starts at $649 for an entry-level model in the United States.


Huberty brings up the possibility of a lower-priced model to address the lower end of the spectrum, saying that a $300 phone would more than double demand.


The 2-year-old iPhone 3GS is now already practically free on contract, and it could easily be the lower-priced solution for emerging markets that Huberty is asking for. Penetration for 3G in those areas is incredibly low, and as Apple starts to tap into the vast Asian market, the picture of a new era of growth starts to become clear.


Fool contributorEvan Niuowns shares of Apple and AT&T, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of China Mobile and Apple.Motley Fool newsletter serviceshave recommended buying shares of China Mobile and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Nov 27, 2011 3:15PM

To Rong55


No, I'm not that uninformed. I understand that when you pay $80 month for a service contract about $40 goes to the smart phone supplier. Best smart phones cost about $200 to make now and that price will drop drastically over the next 24 months.  Smart phones, tablets and all PCs are commodities and the prices are coming down very fast. Apple and others will get paid a fast shrinking price as the distinction between the devices dissolves. Apple and all vendors will get paid less and less as devices become commodities like PCs and other electronics.

Nov 27, 2011 2:38AM

To: havasu46 


Are you really that uninformed about how cell phone sales work? Many are "free" to the consumer because they are paid for by the carrier because the carrier knows they will get their money over the term of the contract. Apple gets paid no matter what the consumer pays.

Nov 26, 2011 3:45PM
The 2-year-old iPhone 3GS is now already practically free on contract, and it could easily be the lower-priced solution for emerging markets that Huberty is asking for
Sick If the phones are "free" then who's really going to make any profits. Why don't the carriers just contract with the hardware and software OEMs to make them and give them away with what ever Os you want?  Does winning the numbers game actually make a winning investment?  Smart phones and tablets will be branded commodities in 2012-13 and they'll be little real distinction between any of them, ala Chevy, Ford and Dodge in the 1970s.  Amusing that a $200-600 phone is the new status symbol since diamonds and watches are so 20th century. So if you carry an iPhone you're a consumer, an aPhone makes you a robot and a wPhone will make you a corporate techy. Pick your device and pay out the nose for connectivity.
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