Edible Apple

With all of the talk about an iPhone 5 and an iPhone 4S, you might well think that Apple is planning to release two different models this fall. Oh wait, they just might!

All Things D relays an analyst report from Ticonderoga Securities analyst Brian White who states that China Telecom has reached a preliminary agreement with Apple whereby the carrier will sell two iPhone versions before the start of October – a next-gen iPhone 5 and a bare bones iPhone 4. And as luck would have it, we recently came across photos purporting to show a cheaper iPhone 4.

If Apple does in fact release a cheaper version of the iPhone 4, it remains unclear if it plans on selling the device worldwide or exclusively in “developing countries like China” to target the low-end to mid-range market.

Targeting the smartphone market’s upper and lower ends like this could prove a wise strategy. “We estimate the high-end portion of China Telecom’s subscriber base is approximately 13 to 15 million, which represents a current revenue opportunity for the iPhone of $8- to $9 billion,” White says. “We view this as the most reasonable near-term addressable market opportunity for Apple’s iPhone. However, if Apple offers a more economical, ‘simplified iPhone 4,’ the opportunity with China Telecom could be much larger.”

And should Apple extend that dual iPhone strategy to its other carrier partners in China, the opportunity grows larger still. With an estimated 100 million to 125 million subscribers, White figures the high-end mobile phone market in China could present Apple with a $70 billion revenue opportunity. But if the company is able to use that simplified iPhone 4 to tap into the rest of the market as well, it potentially expands to over $200 billion.

Lofty numbers, sure, but make no mistake about the potential for profit in China. During Apple’s most recent earnings conference call, COO Tim Cook explained that China in particular, in addition to Latin America and the Middle East, comprise Apple’s main source of growth going forward.

China was very key to our results. As a reminder, for Greater — we define Greater China as Mainland China, Hong Kong and Taiwan — year-over-year it was up over six times. And the revenue was approximately US$3.8 billion during the quarter, and that makes the year-to-date numbers through the three quarters that we have had thus far around $8.8 billion. So this has been a substantial opportunity for Apple. And I firmly believe that we are just scratching the surface right now. I think there is an incredible opportunity for Apple there.

The real Ace up Apple’s sleeve, however, is China Mobile. With over 600 million subscribers, China Mobile is the largest mobile carrier in the world and securing a deal with them would be a tremendous boon to Apple’s bottom line. But one outstanding problem facing Apple there is that China Mobile uses a proprietary TD-SCDMA network and Apple heretofore has been unwilling to adjust its hardware accordingly.

But that might change.

Note that Tim Cook was a few weeks ago was spotted at China Mobile headquarters. Whether a deal was struck to bring the iPhone to China Mobile remains unknown, but the fact that Tim Cook would make the trek all the way to China himself illustrates the high-level nature of the negotiations.