China Mobile has secured a deal with Apple to sell iPhones, but it looks to be a costly one. Brokerages have been rapidly reducing China Mobile’s earnings forecast after the deal with Apple was confirmed because of steep expenses for a new network and handset subsidy costs.
The world’s largest carrier, which has over 750 million subscribers, will being to roll out the iPhone later this month. China Mobile will also have to deal with lower interconnection fees with the Chinese government’s latest efforts to promote competition.
Credit Suisse analyst Colin McCallum said he has reduced his 2014 net profit forecast by 9.1% and cut his price target for China Mobile by 6% to 94 Hong Kong dollars (US$12) as he incorporated in lower interconnection fees and raised his handset subsidy forecast by 5.3 billion yuan (US$876 million) to 36.8 billion yuan for this year after China Mobile’s agreement with Apple.
Marvin Lo, analyst at Mizuho Securities, estimated that China Mobile’s net profit will drop 10% this year, of which a 7% decline would be attributed to a spike in handset subsidies.
Competitors like China Unicom and China Telecom have been offering the iPhone since 2009 and 2012, respectively.
China Mobile is expected to announce its first annual profit decline since 1999 due to the investments in 4G network construction. In a recent report Macquarie analyst, Danny Chu, said:
“Share prices of China Telecom and China Unicom fell for about 6 months after they announced the iPhone partnership agreements as the street was in a race to revise down earnings incorporating handset subsidy expense.”
The Chairman of China Mobile, Xi Gouhua, said last month that the company has plans to invest more heavily in marketing this year to promote its new 4G services.
[via The Wall Street Journal]