Tuesday, January 11, 2011

Will Apple (Nasdaq:AAPL) iPhone Land on China Telecom's (NYSE:CHA) Network Next?

The question for Apple (Nasdaq:AAPL) as we go deeper into 2011 is whether or not they can keep the extraordinary momentum they have up. One event that could provide that would be if the Apple (Nasdaq:AAPL) iPhone ended up on the network of China Telecom (NYSE:CHA). Ticonderoga believes there's good possibility it will.

They said, "Is the Verizon Saga Finally Coming to an End? On Friday, Verizon Wireless (NYSE:VZ)(NR) announced plans to hold a press event tomorrow at 11:00 am ET and the Wall Street Journal reported that Verizon will announce that the iPhone is coming to its network with unlimited data-use by the end of January. A Verizon relationship has been on the minds of investors over the past couple of years and has heated up recently, however, it appears as if this saga may finally be coming to an end. Beyond a potential Verizon announcement, we eventually look forward to news surrounding the iPad 2, new MacBook Pro and 1QFY11 earnings (1/18/11), while further developments in China are possible.

"Both Networks are Similar in Size. As the exclusive carrier for Apple's iPhone, AT&T's (NYSE:T)(NR) dominance appears to be nearing an end. Verizon Wireless had 93.2 million wireless customers at the end of 3Q10 (86.7 million retail, 6.5 million reseller). By comparison, AT&T reported 92.8 million total wireless subscribers at the end of 3Q10.

"Verizon Could Activate 13 Million iPhone Users Over the Next Year. AT&T has activated 19.8 million iPhones over the past six quarters or an average of 3.3 million per quarter. During 3Q10, AT&T activated 5.2 million iPhones in light of the introduction of the iPhone 4. Since there have been many consumers holding out for a Verizon announcement, we believe it is reasonable to expect that both new buyers of the iPhone and upgrades from the iPhone 3GS currently on the AT&T network could move to Verizon. If we assume that Verizon Wireless is able to achieve similar performance to that of AT&T with an average of 3.3 million activations per quarter, this equates to 13.2 million iPhones over the next 12 months. As such, our projection of 61.4 million iPhone units in FY11 and 74.6 million units in FY12 are conservative and do not reflect Verizon. Also, an iPhone deal could eventually expand Verizon's agreement for the iPad beyond Wi-Fi/MiFi."

"Will China Telecom Follow Verizon? In the past, we have indicated that we believe China Telecom (NR) is likely to carry the iPhone shortly after a deal is struck with Verizon. With 88 million wireless subscribers on its CDMA network, China Telecom is nearly the size of Verizon."

"When will the iPad 2 and New MacBook Pro be Announced? We are just back from CES and 2011 was clearly the "year of the tablet". With Motorola (NYSE:MMI)(NR) prepared to launch the Xoom in February and dozens of others preparing for new tablet introductions, we believe Apple would be well suited to announce the iPad 2 before the end of January in an effort to persuade consumers to wait for the new iPad that we believe will be launched in March/April. Additionally, we believe Apple is in the process of refreshing its MacBook Pro line and an announcement could be in the cards."

Ticonderoga Securities maintains a "Buy" rating on Apple, which closed Monday at $342.45, up $6.33, or 1.88 percent. Ticonderoga has a price target of $450 on them.

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