Weekly Mobile: Apple’s Supply-Chain, China Mobile’s iPhone Deal & Qualcomm’s Outlook

The past week saw quite a few developments in the mobile sector. China Mobile (NYSE:CHL) confirmed that it is in talks with Apple (NASDAQ:AAPL) to offer the iPhone but declined to predict as to when the popular smartphone would make its way to the world’s largest wireless carrier. Apple supplier Foxconn said that the former will be sharing the costs of improving working conditions at its factories, following last month’s FLA audits. Qualcomm (NASDAQ:QCOM), meanwhile, remains on track to offer a quad-core Krait app processor later this year.

China Mobile-iPhone deal

China Mobile said at a shareholder meeting May 16th that it is currently in talks with Apple to offer the iPhone on its network. ^[1] However, it declined to predict as to when it expects to close the deal. This is most likely to do with Apple’s (as well as partners’) usual reticence with regards to the launch date of the next-generation iPhone.

Apple has already signed deals with both China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) to sell the iPhone. With China nearing a billion strong mobile subscriber base, signing a deal with China Mobile will present Apple with a huge opportunity to maintain its current high growth rate. China Mobile has a huge mobile subscriber base of more than 665 million, dwarfing its U.S. counterparts Verizon (NYSE:VZ) and AT&T (NYSE:T) by more than 6 times.

See our complete analysis of Apple here

Supply chain investment

Apple’s famed supply chain helps has been one of the biggest drivers of profits at the Cupertino-based company. It therefore should come as no surprise that Apple has decided to split the costs of improving factory conditions at Foxconn with the latter. ^[2] In fact, we believe it to be a very effective way of putting the company’s huge stockpile of cash to good use. This will not only help Apple maintain a good relationship with its supplier but also strengthen its supply chain and enable it to negotiate favorable deals in the future. With margin contraction still a concern as competition from Samsung, HTC, Nokia (NYSE:NOK) intensifies and smartphones penetrate emerging markets, Apple should keep investing in its supply chain in order to support its future margins.

The decision comes on the back of an audit of Foxconn’s Chinese plants by the Fair Labor Association (FLA), which made several suggestions about improving the working conditions and hiking the wages of its employees. Foxconn has since pledged to put the recommendations to action and now has Apple’s support for the same.

Qualcomm’s quad-core strategy

Having already released the well-received dual-core Krait Snapdragons earlier this year, Qualcomm (NASDAQ:QCOM) is looking to amp up its multi-core offerings with the release of a quad-core mobile processor in the second half of 2012. ^[3] The company has faced significant pressure to enter the quad-core race as competitors Nvidia (NASDAQ:NVDA) and Samsung have launched their quad-core products already. However, it has resisted the temptation so far, choosing instead to focus on improving the performance of its current processors before increasing the number of cores to take on its competitors.

We believe that the quad-core race is meaningless unless there is demand for such apps that can take advantage of the extra cores. Moreover, the fact that quad-core chipsets hog more power and are more costly to have in a mobile device since they do not come integrated with a baseband chipset makes the current use of such technology limited. We therefore think Qualcomm has done the right thing by sticking to its strategy of improving the performance of its dual-core processors first and not trying to push out a quad-core processor sooner.

See our complete analysis of Qualcomm here

Understand How a Company’s Products Impact its Stock Price at Trefis

1. China Mobile in Talks With Apple on iPhone Cooperation, Bloomberg, May 16th, 2012 [↩]
2. Apple, supplier Foxconn to share costs on improving factories, Reuters, May 10th [↩]
3. Qualcomm is ready for quad-core ‘ARM’ race, CNET, May 11th, 2012 [↩]