Apple Inc. (NASDAQ: AAPL) remains a key focal stock for many investors as it continues to take market share and as it continues growing international.  This morning came a research note with a maintained “Buy” rating and $500 target from Stern Agee’s Shaw Wu, but what is interesting about this call is that the focal point is over the growth of the iPhone in China and the coming incremental earnings it may bring.

The report notes that the success of wi-fi could actually eliminate the need for a 3G TD-SCDMA model.  The note discusses frequent inquiries about the progress with China Mobile Ltd. (NYSE: CHL) and the iPhone.  Wu noted that China Mobile is becoming important even with no official deal between it and Apple as China Mobile recently disclosed that it has some 10 million iPhones on its network and that is without support for its proprietary 3G TD-SCDMA network.

Customers are buying unlocked and unsubsidized iPhones from Apple and in the black and gray markets for prices of roughly $675 to $945 and they are using Wi-Fi and the older 2G network for coverage.  China Mobile is also said to be enticing iPhone customers by offering free gift card promotions for its Wi-Fi service.

The firm believes that Apple and the Chinese carrier remain firmly engaged and its sources indicate that iPhone prototypes using the TD-SCDMA chip sets have been under beta test for some time.

One hurdle is believed to be App Store economics, because Apple does not share revenue with carriers while the market for mobile apps in China is becoming a big deal.  Effectively, China Mobile wants a larger piece of the action.  Wu has noted, “we view the signing of China Mobile as a carrier partner as a big deal. We believe it greatly expands Apple’s China opportunity where China Mobile has more than 628 million subscribers vs. 189 million for China Unicom (NYSE: CHU). We estimate that China represents 15% of revenue and believe China Mobile could potentially double Apple’s market there.”  That could be another $2.50 to $3.50 in incremental earnings per share.

Apple shares are up 1.5% today at $405.68 and the 52-week trading range is $297.76 to $426.70.

JON C. OGG

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