Strategy Analytics reports that:

Smartphone shipments grew 58 percent sequentially to reach a record 23.9 million units in China during Q3 2011. In contrast, smartphone shipments fell 7 percent sequentially to reach 23.3 million units in the United States. China has overtaken the United States for the first time to become the world’s largest smartphone market by volume.

The smartphone manufacturers that have seen success in China are different than those that have done well in the U.S. Strategy Analytics claims the most dominant smartphone companies in the U.S. are HTC and Apple. In China, they are Nokia (NYSE: NOK) and Samsung. Nokia is supposed to be the handset manufacturer in the most trouble in the industry. Apple is supposed to be the most successful. That is not true, if the People’s Republic is factored in.

Apple has been slow to make alliances in China. It has a deal with China Unicom (NYSE: CHU) but not one with the much larger China Mobile (NYSE: CHL). Absent an alliance with the number one carrier in the world’s most populous nation, Apple has a problem.

Nokia has ridden its success with low-priced phones in China to a strong position in the smartphone industry there. Nokia’s market share in smartphones has dropped throughout the rest of the world, though. Most analysts believe that its alliance with Microsoft (NASDAQ: MSFT) to put Windows Mobile onto its new smartphones will be the key to its eventual growth. That is not entire true. Not as long, at least, as it is a leader in the People’s Republic.

China has become a critical — if not the critical — market for the success of smartphone companies. Nokia’s lead in the People’s Republic is a sign that the company is not dead, as well as that Apple is not as dominant in the business as most believe.

Douglas A. McIntyre

“China Mobile alone plans to deploy a million hotspots and Japan’s KDDI plans to grow its 10,000 Wi-FI hotspots to 100,000 within six months,” the reports says. What it does not say is that Wi-Fi use may not be the method by which most Chinese and Japanese get online. Japan is already well along deploying superfast 4G networks. China has begun to aggressively install 3G systems. Outside the two large Asian nations, 4G has begun to become standard in South Korea, the U.S., the UK and much of the EU.

The Wireless Broadband Alliance has every reason to promote its view of the future. Its members are in the business of the manufacturing and deploying Wi-Fi technology. The association says 3G and 4G networks will interoperate with Wi-Fi seamlessly. But well-built broadband infrastructure will make Wi-Fi unnecessary in many geographic locations.

The future of Wi-Fi is actually very limited. It quickly has become the technology of the past decade. Smartphone and tablet PC users connect to most networks through companies like AT&T (NYSE: T) and Verizon Wireless. The Wireless Broadband Alliance and the success of its members are yesterday’s news.

Douglas A. McIntyre

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

The mainland’s major index, the Shanghai Composite, has fallen 17% in the past year. Between the two markets are the listings of giants China Mobile (NYSE: CHL), China Petroleum (NYSE: SNP) and China Life Insurance (NYSE: LFC). It is extraordinary that telecom, energy and financial services industry shares should drop so sharply when none has any direct relationship to the others.

The four concerns about China’s financial health persist. The first is that inflation still lurks even though China’s economy has slowed. The sharp increase in food prices has many economists worried that real wages cannot keep up with the cost of living. And China counts on its middle class to consume a large portion of the output of the nation’s impressive manufacturing sector. Inflation will cause discretionary income to fall.

Property values, particularly in the largest cities, are high by historic measures and compared to similar real estate around the world. Any sharp slowdown in China’s GDP will undercut the ability developers to expand and rent these properties. Individual home owners could be left with large numbers of underwater mortgages. Analysts fear a rapid drop in property values similar to those in Japan three decades ago. Japan’s real estate fiasco helped ruin its GDP expansion, and the recovery from that took several years. By some standards, Japan’s economy has never recovered completely from the blow.

The chance of a trade war with the U.S. has increased sharply in the past several weeks. What was unimaginable has become possible. The U.S. Senate has agreed to a bill that would result in sanctions against China because of its currency problems. The Treasury Department recently delayed its biannual analysis of nations that have used their currencies to put the U.S. at a disadvantage with regard to trade balances. The Obama administration hopes quiet negotiations will resolve the yuan valuation issue. The belief that will work continues to dwindle.

And, the most significant concern about a sharp stall of China’s growth is Europe. Austerity and high unemployment have turned the EU economy back toward recession. If the sovereign debt crisis worsens, the recession could be deep and long. The EU economy is still the largest by GDP, about $2 trillion more than the U.S. A drop in demand for China’s exports could put manufacturing in the People’s Republic into a tailspin.

Stocks markets, some experts say, trade based on investor perceptions of what economies and earnings will be six months to a year into the future. China is in great trouble if there is truth to that.

Douglas A. McIntyre

Apple (NASDAQ: AAPL) shares fall because of rumors that iPad production is low. (Reuters)

Warren Buffett’s Berkshire Hathaway (NYSE: BRK) to buy back shares. (Reuters)

The SEC may charge S&P because of ratings of mortgage-backed securities. (Reuters)

Nokia Siemens will move into the router business. (Reuters)

Asian firms that launched mobile operating systems will have little success against Apple and Google’s (NASDAQ: GOOG) Android. (Reuters)

The inspector general of the FHFA said Freddie Mac could have recouped billions of dollars in claims over default mortgages. (WSJ)

Eastman Kodak (NYSE: EK) shares fall as the company takes $160 million from a credit facility, which raises issues about its cash balance. (WSJ)

U.S. officials will review whether Motorola Mobility (NYSE: MMI) paid bribes to get business in Europe. (WSJ)

The Air Line Pilots Association sues United Continental (NYSE: UAL) over work rules. (WSJ)

Utica Shale in Ohio may be one of the next large shale oil fields. (WSJ)

UAW negotiations with Ford (NYSE: F) accelerate. (WSJ)

Lenovo and Compal to jointly launch a tablet PC. (WSJ)

The ECB cuts its purchase of sovereign bonds issued in the region. (WSJ)

The OECD and the International Labour Office say unemployment is a large risk to recovery in the developed world. (WSJ)

Amazon.com (NASDAQ: AMZN) reaches a deal to distribute Fox premium content. (WSJ)

Problems at Nokia (NYSE: NOK) hurt its suppliers. (WSJ)

A third of natural gas found in North Dakota is wasted as production companies cannot use it. (NYT)

Goldman Sachs (NYSE: GS) may cut a large number of jobs. (NYT)

Martha Stewart rejoins the board of Martha Steward Omnimedia (NYSE: MSO). (NYT)

China suspends some military ties with the U.S. as it objects to American sales of arms to Taiwan. (FT)

Google+ gains subscribers quickly. (Bloomberg)

China Mobile (NYSE: CHL) has more cash than Apple. (Bloomberg)

Douglas A. McIntyre

Currently the only Chinese carrier for the iPhone is China Unicom (Hong Kong) Ltd. (NYSE: CHU), the second largest of the big three carriers, with about 155 million subscribers. China Telecom Corp. (NYSE: CHA) is the smallest of China’s large carriers and has been been in talks with Apple to produce a cheaper version of the iPhone for the Chinese market.

Whichever company gets the nod from Apple, it is very likely that the iPhone will be the company’s 3G model, not the 4G-LTE model that Apple is expected to introduce with its next iteration of the phone, the iPhone 5. China Telecom uses the CDMA network, similar to that of Verizon Wireless and Sprint Nextel Corp. (NYSE: S). Verizon Wireless is joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD).

China Mobile uses a home-grown version of CDMA known as TD-SCDMA, which is only available in China. China Unicom uses GSM technology, similar to AT&T (NYSE: T), and that is probably the reason the company got Apple’s first contract in China.

Apple has been resisting China Mobile’s efforts to get a version of the iPhone for its network. The cost of developing the iPhone for a network technology that is expected to give way to the faster 4G-LTE network probably isn’t worth the investment at this point. China Mobile is expected to begin rolling out its 4G-LTE network next year.

The request/requirement for a cheaper version of the iPhone is probably a result of China Unicom’s poor earnings report for its first-half of 2011. The country is moving toward adoption of 3G networks where the iPhone 4 is a strong contender. But the large subsidies that Apple demands (and gets) put a lot of pressure on China Unicom’s profitability. First-half profits were down more than -9% year-over-year.

Apple still hasn’t confirmed that the iPhone 5 will operate at 4G-LTE speeds. The company is wary of the reduced battery life that is a side-effect of the higher speed networks. iPhone users have become accustomed to eight hours or so of battery life, and cutting back on that may lead to dissatisfied customers, not something that Apple is used to.

Interestingly China Mobile currently supports about 8.5 million iPhone users on its 2G network. These are users who got their hands on unlocked versions of earlier models of the iPhone.

Will Apple release an 4G-LTE compatible iPhone? Of course. The issue is when. And for China Mobile the issue is will Apple release interim versions of the iPhone that are compatible with the company’s network. The answer to that is probably not, mainly because Apple probably stands to get a bigger share of the Chinese market by putting out a cheaper phone rather than a one-off phone. Besides, China Unicom’s experience indicates that Chinese versions of the iPhone may have to be sold at lower prices than Apple is used to.

If Apple succumbs to the pricing pressure and makes a cheaper iPhone for China, other carriers in other countries will demand the same phone. Can Apple reasonably deny that request? Not unless a future version of the iPhone is worlds better than anything else on the market.

The negotiations between Apple and the Chinese carriers are a precursor to negotiations Apple will face with other carriers around the world. New CEO Tim Cook faces a big decision here. And history may not provide much of a guide.

Paul Ausick

U.S. box office sales near records despite the slowdown. (Reuters)

Lenovo posts strong earnings in spite of troubles with global PC sales. (Reuters)

China Mobile (NYSE: CHL) says earnings grew rapidly as its high-end users expanded. (Reuters)

Apple (NASDAQ: AAPL) and Qualcomm (NASDAQ: QCOM) are candidates to buy InterDigital (NASDAQ: IDCC). (Reuters)

The head of Nokia (NYSE: NOK) warns handset companies to be careful about Android use after Google (NASDAQ: GOOG) announces it will buy Motorola Mobility (NYSE: MMI). (Reuters)

The Federal Reserve examines the cash balances that foreign banks keep in the U.S. (WSJ)

Exxon Mobil (NYSE: XOM) and the U.S. in disagreement over ownership of one of the largest oil fields in the Gulf of Mexico. (WSJ)

Oil investment expands from traders to large pension pools. (WSJ)

Coca-Cola (NYSE: KO) to invest $4 billion in China over the next four years. (WSJ)

Local governments struggling from the effects of downgrades by S&P and Fitch. (WSJ)

Japan shows a trade surplus in July.  (WSJ)

Venezuela to nationalize its gold industry. (WSJ)

Eastman Kodak (NYSE: EK) begins the process to sell its patents. (WSJ)

France and Germany to try to cut off nations that do not control deficits from EU transfer funds. (WSJ)

Greece may have a fourth year of recession in 2012. (WSJ)

FDA approves Vemurafenib, made by Roche Holding AG and Daiichi Sankyo, one of the first gene-guided cancer drugs. (WSJ)

McGraw-Hill (NYSE: MHP) may spin off its college text book division. (WSJ)

The UAW begins the process needed to strike against Ford (NYSE: F). (WSJ)

China’s largest TV channel attacks Baidu (NASDAQ: BIDU) for its sales practices. (WSJ)

The SEC accused of destroying files from some of its investigations. (WSJ)

The SEC investigates S&P for its ratings of mortgage-back securities before the financial collapse. (NYT)

A move to stop the rise of the Swiss franc fails to work. (FT)

Morgan Stanley (NYSE: MS) lowers its forecast for global growth. (Bloomberg)

Douglas A. McIntyre

IBM’s (NYSE: IBM) service business rose, driving earnings up (Reuters)

Cisco (NASDAQ: CSCO) will fire 15% of its workers (Reuters)

EU leaders have not reached any meaningful conclusions on a Greek bailout (Reuters)

Brent crude rose on an anticipation of low U.S. oil stocks; gold was higher (Reuters)

Apple Inc’s (NASDAQ: AAPL) earnings forecast will be critical to investor views on whether the stock has become too expensive (Reuters)

China’s web users hit 485 million (Reuters)

Microsoft’s (NASDAQ: MSFT) fiscal year earnings expected to be a record, but shares have not risen (Reuters)

Borders Group was liquidated (Reuters)

Clorox rejected a bid from Carl Icahn (Reuters)

AIG (NYSE: AIG) may take its airplane leasing operation public (Reuters)

Utilities may be faced with huge costs to buttress nuclear plants against earthquakes (WSJ)

Apple (NASDAQ: AAPL) will probably set a deal with China Mobile (NYSE: CHL) to greatly increase sales of the iPhone (WSJ)

Greece is looking for bankers to handle government asset privatization (WSJ)

The value of Kodak’s (NYSE: EK) bonds has dropped over fears about its future (WSJ)

Baidu (NASDAQ: BIDU) has set a deal with record companies to distribute songs in China (WSJ)

Car companies will challenge 2025 mileage goals because adoption of electric cars may be slow (WSJ)

Investors want a cheaper Apple iPhone to counter Google’s (NASDAQ: GOOG) Android-based devices (WSJ)

The U.S. long bond has been affected by default concerns (WSJ)

News Corp’s board said it supports Murdoch (WSJ)

Delta (NYSE: DAL) will cut services to a number of small cities (NYT)

China has no way out of U.S. debt no matter what the risk because of the size of its holdings (NYT)

Investors moved more money into gold and the Swiss franc as U.S. debt has become more risky (FT)

Yields on Italian and Spanish bonds hit records (FT)

Facebook ad prices are up 74% as marketers move from print and TV (FT)

Calpers reported its best results in 14 years (FT)

China’s tax revenue rose 29.6% in the first half to $773 billion, and this will help it battle problems with local debt (Bloomberg)

AMD (NYSE: AMD) may post good earnings, but lack of a CEO worries investors (Bloomberg)

Douglas A. McIntyre

An Apple (NASDAQ: AAPL) patent lawyer may leave the firm (Reuters)

China bank lending picked up. This could cause more inflation (Reuters)

Cisco (NASDAQ: CSCO) may fire 10,000 workers (Reuters)

Sprint Nextel (NASDAQ: S) has received subpoenas from nine states with regard to the AT&T (NYSE: T) buyout of T-Mobile (Reuters)

Apple filed new patent claims against HTC (Reuters)

Markets were upset over concerns that Italy’s debt situation was worse than thought (WSJ)

Hedge funds have started to invest more in private internet companies (WSJ)

China Mobile (NYSE: CHL) plans to build out 4G networks (WSJ)

Shareholders sued News Corp over the effects of the UK scandals (WSJ)

NCR will buy Radiant Systems for over $1.1 billion (WSJ)

Cisco will update its high-end switching product (WSJ)

Amazon (NASDAQ: AMZN) will try to get the online sales tax issue on the statewide ballot in California (WSJ)

EU finance ministers suggested that bailout facilities be expanded (NYT)

As part of an $8.2 billion mortgage settlement Bank of America (NYSE: BAC) will turn over home loans to other customer, which could accelerate foreclosures (NYT)

Starbucks (NASDAQ: SBUX) reorganized to drive overseas growth (NYT)

Dunkin Donuts will raise $460 million in an IPO (NYT)

Banks have offered attractive rates to get more hedge fund business (FT)

Alcoa (NYSE: AA) earnings doubled (FT)

China’s satellite surveillance technology has begun to rival America’s (FT)

News Corp has lost $7 billion in market cap over the last four days (Bloomberg)

Portugal’s GDP will fall this year and next because of austerity measures (Bloomberg)

The People’s Bank of China said money supply grew in the People’s Republic last month (Bloomberg)

Moody’s said a number of Chinese companies have poor governance (Bloomberg)

Douglas A. McIntyre

Greece has an agreement with the EU and IMF along with new austerity plans. (Reuters)

A Reuters poll says most forecasters have dropped estimates for stock gains. (Reuters)

Oracle’s (NASDAQ: ORCL) hardware sales dropped and its shares fell after earnings. (Reuters)

The US government has started an antitrust investigation into Google’s (NASDAQ: GOOG) search share.  (Reuters)

JP Morgan (NYSE: JPM) has dropped a large number of lawsuits to recoup credit cars balances. (WSJ)

EU leaders prevented Greece from renegotiating loans. (WSJ)

Apple (NASDAQ: AAPL) was approved by the government to bid for Nortel patents. (WSJ)

EU bank stress tests will cause financial firms to more carefully account for the value of sovereign debt. (WSJ)

The Obama decision to release oil reserves was caused by high gas prices. (WSJ)

Lagarde said emerging economies would play a larger role in IMF decisions and policies. (WSJ)

Viacom (NYSE: VIA) sued Cablevision (NASDAQ: CVC) over an app the streams live TV. (WSJ)

Geely Automotive will open a second plant Volvo plant in China. (WSJ)

Airbus got a record 200 A320neo order from AirAsia. (WSJ)

Ford’s (NYSE: F) quality dropped in a new JD Power survey. (WSJ)

Nissan said it could make money on electric cars by 2014. (WSJ)

The Consumer Financial Protection Bureau picked six sectors which could be supervised by the agency. (WSJ)

Carlyle raised only $1 billion in an IPO which priced below expectations. (FT)

Oracle said M&A has become too costly. (FT)

Twitter plans to add more visible advertising. (FT)

The board of Yahoo! (NASDAQ: YHOO) said it supported CEO Carol Bartz (FT)

Facebook appointed the chief of NetFlix (NASDAQ: NFLX) to its board. (Bloomberg)

Sears Holdings Corp. plans to spin off its home improvement unit, Orchard Supply Hardware, as a separate publicly traded company. (various)

Apple (NASDAQ: AAPL) will launch the iPhone on China Mobile (NYSE: CHL) later this year. (various)

Douglas A. McIntyre