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Apple iPhone Event — China Is the Key

Apple (AAPL) stock got back above $500 to start the week in anticipation of its Tuesday media event, in which Apple is expected to unveil both a flagship smartphone line and a cheap iPhone line to go after the lower end of the market.

But if you’re buying AAPL simply because of the cheap iPhone, you’re only getting half of the story.

The real buzz is about Apple pushing into China in earnest with that cheap iPhone — and the potential of unlocking market share in this massive emerging market is much bigger than the potential of Apple clawing back some cheap smartphone sales in the states from Google (GOOG) Android users.

A recent Wall Street Journal article sourced rumors that Apple is now planning to ship its less-expensive iPhones to China in connection with mega telecom China Mobile (CHL). The 700 million users on China Mobile plans are now currently big fans of Android and Samsung (SSNLF) among western brands, but also Asian tech giants Lenovo (LNVGY) and Huawei Technologies.

In August, researchers reported AAPL saw its already miserable market share in China slip again — to just 5%. So this push into China with a cheap smartphone is not just well-timed but much-needed if AAPL is going to truly compete as a global smartphone brand.

The cheap iPhone has gotten a lot of attention because it’s supposed to come in flashy colors and provide an alternative for lower-end users in developed markets. But frankly, Google isn’t making much money on those folks, either — especially since it doesn’t do the hardware for cheap smartphones and is simply providing the operating system — and it’s not like Apple needs to do a heck of a lot to fend off the also-ran Windows phone from Microsoft (MSFT) or a steadily dying BlackBerry (BBRY).

Apple has long tried to hammer out an agreement with China Mobile, but has been stymied in part by the fact that overseas carriers are less than eager to provide phones at the deep discounts that American companies like Verizon (VZ), AT&T (T) and Sprint (S) do. Without a carrier-sponsored subsidy, that makes the iPhone out of the price range for many Chinese consumers.

A cheap iPhone, however, is the best of both worlds. It provides a sexy addition to CHL without a big price tag, and it allows Apple to reach these lower-end customers.

The flashy colors on the new model might be what American consumers are latching on to most with this upcoming AAPL event, but keep an eye on China — that’s where the real money is at.

Related Reading on AAPL and Its Cheap iPhone

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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