Apple’s China Ventures Keep it at the Top of My Stock List

Apple’s China VenturesApple Inc. (NASDAQ/AAPL) will report its fiscal third quarter on July 24, but the real excitement for the company will be the second half, when Apple releases the highly anticipated “iPhone 5,” an “iPad” mini (to challenge smaller tablets), and the next version of “Apple TV.” I recently played around with Apple TV, and I can tell you it is quite impressive. The ability to wirelessly stream pictures and video from your “iPhone” and iPad to the television is great.

 While the stock price of Apple fell to the $530.00 level in May after trading at a record $644.00 in April, the stock has since rallied to above $600.00 on July 5 in anticipation of strong results in the second half.

The arrival of the latest iPad in China on July 20 will be seen as a critical time, as Apple is trying to add to its lead in the global tablet market, including the high-potential Chinese market that Apple currently counts as its second-largest market, trailing only the U.S. In the fiscal second quarter, sales in China accounted for 20.2% of total sales or $7.9 billion, up over 300.0% on a year-over-year basis, and expected to grow. Yet there is ample room for growth in China, as Apple has less than 20.0% of the smartphone market in China compared to around 70.0% for the Google Inc. (NASDAQ/GOOG) “Android”-platform phones.

In spite of all the talk about stalling in China, the Chinese economy is still considered a major area for long-term growth as the country’s income levels rise.

China’s mobile phone sector is enormous, with mobile phone users eclipsing one billion at the end of April, according to the Ministry of Industry and Information Technology in China.

Think about it. There are more mobile phone users in China than the populations of the U.S., the European Union, and Canada combined!

Apple realizes this, so it will surely be focusing its energies on expanding its brand in China for a population that believes brand consciousness is important.

The reality is that the income levels are steadily increasing in China, and the income demographics support consumer spending. Credit Suisse predicts that the household wealth in China will double to $35.0 trillion by around 2015, based on achieving sustainable GDP growth at or near the current levels. This will allow consumers to spend more on non-essential goods and services, such as mobile phones.

A key advantage for Apple will be its alliance with China Mobile Limited (NYSE/CHL), the country’s biggest mobile company with a market-cap greater than AT&T Inc. (NYSE/T) and Verizon Communications Inc. (NYSE/VZ). China Mobile is ranked the top brand in BusinessWeek’s “20 Best China Brands.” The stock pays an annual dividend of $2.03, for a current dividend yield of 3.7%. The company had 667 million subscribers at the end of May.

In my opinion, the second half looks exciting for Apple. The company’s main rival is Samsung, which produces a great smartphone and tablet, but it doesn’t have the same level of brand awareness as Apple. Past rival Research In Motion Limited (NASDAQ/RIMM) needs a miracle and is betting on its new “BlackBerry 10” operating platform. However, as I recently discussed in “Research In Motion Had Better Be Right,” I think it’s too late to play catch-up.