The China Mobile iPhone MOQ

“BEIJING and CUPERTINO, California—December 22, 2013—Apple® and China Mobile today announced they have entered into a multi-year agreement to bring iPhone® to the world’s largest mobile network. As part of the agreement, iPhone 5s and iPhone 5c will be available from China Mobile’s expansive network of retail stores as well as Apple retail stores across mainland China beginning on Friday, January 17, 2014.

China Mobile & Apple Bring iPhone to China Mobile’s 4G & 3G Networks on January 17, 2014 – Yahoo Finance

January 17 seems to be an auspicious date.[1]

Precisely a year prior to that date, on January 17, 2013, I wrote The iPhone MOQ.

Within that post I showed the activation rates for US operators as a percent of total users. Figures ranged from 10% to 19% by year or operators. I further assumed the figures would be toward the high end of that in Japan based on statements by the president of NTT DoCoMo.

The last phrase I used was:

“The MOQ figure as percent of subs for China Mobile would also be an interesting point of debate.”

My assumption would be that CM would start at a base significantly lower than the US or Japan. I would not be surprised to see an MOQ of 4% of user base for 2014. In the press release above China Mobile states that they serve 760 million customers. That implies a minimum order of about 30 million iPhones.

In the absence of any other data it’s best to be conservative.

  1. January 17 is a lucky day in Chinese numerology: 1+7=8 is a multiple of number 8, which is the most auspicious number.  Joe Zou @zzbar via Twitter []
  • “In the absence of any other data it’s best to be conservative.”

    4% of 760 million, you sly devil…

  • bick

    If we’re being conservative, then convention right now is to use the current 170M 3G users on China Mobile as the base figure for market size. 4% would be 6.8M iPhone sales in the first year. Fortunetly, I’m optimistic and think we’re likely to see this many in sales to CM the first quarter.

    • marcoselmalo

      I don’t know if they represent substantial or meaningful numbers, but aren’t there already China Mobile customers that use unlocked iPhones on the 2g network? I would assume that these folks are going to be first in line to upgrade to get 4g speeds (and 3G fallback speeds). If they represent 0.5% of the total base, that’s an additional 3.5 million iPhones, no?

      • Jake_in_Seoul

        Supposedly over 40 million iPhone users on China Mobile. They are generally wealthy, diehard Apple fans, who stayed at 2g to keep their beloved iPhones and their long-term phone number (which are not portable when switching carriers). Some will just have bought iPhone 5 sets and not be willing to switch soon, but probably over half are likely pondering an upgrade, depending on whether the phones work smoothly between 4g/3g/2g networks. Luring existing iPhone users on China Unicom and China Telecom over to China Mobile will likely be tougher and will depend on the perceived quality of 4g service and the degree of subsidy. There is also a chance that China Mobile iPhone sets may have a higher resale value than the gsm/CDMA sets, since they are tailor made for the China Mobile networks and hence not marketed in Hong Kong (maybe in the future?) or elsewhere, so the grey market will have to depend on used and stolen sets, buttressing their price. If this is correct it may add to the attractiveness of going over to China Mobile.

      • obarthelemy

        40m users staying on 2G to use an iPhone raises interesting questions, especially about jobs to be done, bandwidth consumption, and brand awareness vs features awareness of Apple customers.

      • bandwidth

        Yeah. Crazy that other platforms must be so bad to use that it overrides the advantage of faster bandwidth.

      • charly

        You make me smile.

      • tedcranmore

        You’ve hit the magic data set that will lead to upside in ChiMo iPhone sales. A very significant percentage of this 40-45 million will quickly upgrade to a true carrier specific 4g iPhone. This demographic has both the financial capability and interest to make the jump to the new phone. Why stay at 2g for any longer than necessary when a clear alternative exists? I think there comparably few iPhone 5s (everyone knew this deal was pending) in this group so this would an upgrade of phone as well as a well as cellular speed.

        If Apple gets 30-40 % of this group that is 12-16 million units. This number is before any new customers join the fold. My estimate for first year sales at china mobile are 25-30 million iPhones.

    • The job the iPhone is being hired to do is to move users to 3G or 4G.

      • obarthelemy

        I’m still not sold on this at all. Is there any data anywhere to support that iPhones sell more expensive contracts (since data is sold via contracts, not by the byte), controlling for device price (or at least, for device high-endedness, iPhone is still 50-100% more expensive than even a GS4) or for customer purchasing power ?

    • Davel

      I agree 10% is 17 almost half the 30 prod evicted here as conservative

      As Horace himself says 2g does not apply to Apple.

  • robdk

    30 m in the first year.

    But it is a multiyear deal, according to Apple PR.

    If we say 4 years, and assume a 2% growth every year, as as happened in the US, then by year 4 we would have 10% = 75 m extra iPhones per year in 2017.

    • charly

      75 million/year = 150 million total
      China’s population = 1.5 billion
      so 10% population
      + iphone users on other Chinese networks

      Those numbers are imnsho unobtainable for Apple. They don’t have that market share in some rich countries where apps are available in the native or second native language.

      • penetration

        You’re confusing market share and penetration.

      • charly

        I know. So penetration is even lower.

    • Sacto_Joe

      A 2% increase in sales per year comes out to 32.4729648 million sold in the fourth year….

  • Luis Alejandro Masanti

    Cultural&Calendar differences:

    We use to gift in Christmas and, a lot less, New Year.
    But those days are meaningless to Chinesse people (OK, maybe not the New York Countdown),

    But the Chinesse New Year will come on January 31st.
    So, for they, this announcement is likes being gone on November 20th for us.
    They will have one more reason to buy.

    My gut, without any sustainable reason, is that launch weekend will be bigger that last 5S/5C launch in US el al.

  • Gene Grush

    What kind of halo affect do you see on other Apple products in China for all the IPhones that are purchase from China Mobile?

  • Space Gorilla

    So, if AT&T serves 109 million customers, and sells roughly 21 million iPhones annually, applying that to China Mobile’s 760 million customers gives us 146 million iPhones sold annually. Not that I expect that, but it’s hard to overstate the opportunity here. Yes, yes, there’s a lot of poor people in China, but the absolute number of people in China who can afford an iPhone is huge. Anyone who thinks the iPhone isn’t going to do very well in China is clearly high or crazy, or maybe both.

    • charly

      US is a market where non-smart phone users got an iphone. In China the people who can afford a iphone already have a smart phone. This makes getting new costumers much harder as the only selling point Apple has at the moment in China is status as android is easier if you know Android and not IOS and there are much more Chinese apps for Android than for ios

      • The same was true in Japan, but look what happened once Docomo began carrying it.

      • charly

        The app situation for Apple was much better in Japan and the users came from an earlier, less refined Android or from not Android.

      • Not much earlier. DoCoMo happened in 2013. I’d say the opposite of what you wrote is true, that users in China are more likely to be on “less refined” Android. Tons of cheap “smart” phones running a stripped down Android.

      • charly

        But how many of the customers for $650 phones buy $50 phones?

      • Kizedek

        Unless Android isn’t easier, even when you “know” some form of Android and not iOS

      • charly

        But that is unlikely to be true

      • Stephen Young

        You do realize of all those people who already own an iPhone (that can afford an iPhone), their phone iPhone 5 and before do not work on the 3G or new 4G networks of China Mobile. So why wouldn’t they upgrade, especially if their is a subsidy?

      • charly

        Because they use an Iphone not because of user-friendliness or app debt but because of status. Making it cheaper and easier to get is in those cases even a negative

      • charly

        app depth not app debt

    • obarthelemy

      Number of people does not = Apple sales. There’s an awful lot of people in Europe too, yet the proportion of those chossing iPhones is a lot lower than in the US. How subsidized are plans in China ?

  • Axel

    Horace, are you calling the 30m conservative? Doesn’t it seem a bit simplistic to apply the same (presumed) model for MOQ as for the US, when income distribution and smartphone penetration differs wildly?

    • Yes, I did call it conservative. I am not applying the same model as in the US. The percent of user base attachment is about one third of the US and one half of what I expect for DoCoMo.

      • Axel

        What I meant was, is it even relevant to talk about the entire user base, when it has such different characteristics compared the those of the US and Japan. If they rather talked about addressable user base (smartphone users with enough income), 30m is not so conservative anymore

        In any case, interesting analysis and looking fwd to the first numbers on pre-orders/sales Apple releases.

      • Space Gorilla

        The first round of sales numbers we get will be interesting, but I wouldn’t point to those and say ‘Great sales!’ or ‘Bad sales!’ Better to see where things shake out after the first year. I do expect 30 million iPhone sales is quite conservative. Humans seem to like the iPhone.

  • Chris

    Anyone consider the other datapoint that CM released, namely the number of base stations they plan to have completed by 2014 at 500,000? The number of cell towers in US is ~200,000 for ~130M smartphone users. If proportions are the same, this implies 325m CM 4g users, of which a 30m MOQ implies 10% of 4g user base. (I’m sure someone will tell me if this sounds crazy.)

    • obarthelemy

      I’m not sure much can be derived from number of towers alone. Both population densities and income level vary a lot.

  • jambani

    Not that sell-side analysts matter much in what is ultimately an educated guessing game, but their numbers are even more conservative…ranging I believe from 12 to 20 million in 2014. If Apple does in fact sell 30 million units to CM in 2014 then it would obviously blow away most of the estimates out there.

  • erickwong

    I’m certainly no expert, but I don’t follow the logic of the footnote, which seems to confuse Western and Chinese numerologies. Surely 44 would not be an auspicious number even though 4+4=8? Also, I’ve always thought that auspicious dates (for weddings) are chosen based on the lunisolar calendar, so the number 17 doesn’t sound relevant at all.