One of the company’s difficulties and challenges is that it does not offer the iPhone from Apple Inc. (NASDAQ: AAPL). Competitors China Telecom Corp. (NYSE: CHA) and China Unicom (Hong Kong) Ltd. (NYSE: CHU) both offer the iPhone to around 75 million customers on their 3G networks. China Mobile claims more than 114 million 3G customers at the end of the first quarter. The company also says it has more than 726 million total subscribers.

China Mobile’s strategy is to build out its LTE-4G network at a cost approaching $7 billion in 2013. Its existing 3G network is not compatible with the iPhone, and even if it were, the company’s 3G offering is considerably slower than those of its competitors. Both Apple and China Mobile have been looking forward to a deal that will get the iPhone on China Mobile’s improved network.

That is quite an opportunity for Apple — and for Samsung Electronics and its Galaxy smartphones. But serious issues remain. For example, of some 250 million new smartphones estimated to be sold in the Chinese market this year, the vast majority will be “no-name” brands using the Android operating system from Google Inc. (NASDAQ: GOOG). For Apple or Samsung to compete with these low-cost phone makers, they will need to come up with a device that sells for less than $100 and still maintains a decent margin. Samsung, which offers a broader line of price points in its smartphone offerings, is actually a better bet than Apple to pull this off.

Apple’s second problem is the fallout from the recent state-sponsored attacks on the company for its warranty and service policies. Besides the damage to Apple’s brand value in China, the attacks could induce China Mobile to negotiate harder for a better deal from Apple. If Apple wants a go at the carriers 726 million subscribers, it will have to cave in, and that will not help Apple’s margins either.

Once the savior of nearly any industry you could name, from heavy equipment makers like Caterpillar Inc. (NYSE: CAT) to automakers like General Motors Co. (NYSE: GM) and fast-food joints like Yum! Brands Inc. (NYSE: YUM), Chinese growth was forecast to fan the fires of growth for U.S. firms. But China’s recent slowdown is having its effect on all these industries, and smartphones could be the next to get knocked around.

Over the past couple of years Apple has done well in China, which generated more than 20% of the company’s revenue growth. Given the rise of no-name competition and the massive attack on the Apple brand, even a deal with China Mobile may not be enough to juice Apple’s shares again.

Customer response to iPhone 5 in China has been incredible, setting a new record with the best first weekend sales ever in China. China is a very important market for us and customers there cannot wait to get their hands on Apple products.

Cook, of course, is right about the importance of China to Apple. But the company still does not have a sales deal with China Mobile Ltd. (NYSE: CHL), the country’s largest wireless carrier. Apple has agreements with both China Unicom (Hong Kong) Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA), but the two combined claim only half as many as China Mobile’s 700 million plus subscribers.

And China, also of course, remains the biggest opportunity in the world, and Apple — and every other handset maker — must do well here. Of the country’s 1.3 billion people, about 1.1 billion are already mobile phone users. At the end of September, Apple was the sixth-ranked seller in China, behind leaders Samsung and Lenovo.

So while 2 million iPhones during the debut weekend may be Apple’s best ever, the company is going to have to do a lot better to move up the sales rankings in China. Much, much better.

Paul Ausick

The value of China’s brands has been damaged along with the nation’s economic prospects. In the introduction to the study, the authors wrote:

Brand strength is key to sustained commercial success, as this year’s survey demonstrates. For the first time since we first published this study in 2011, The China Top 50 declined in brand value. The decrease, a relatively minimal 1.6 percent, is attributed mostly to the slower growth rate of China’s economy.

Douglas A. McIntyre

A rare piece of good news for Microsoft Corp. (NASDAQ: MSFT) Windows came out of a new IDC report on tablet PC sales. Over the period from 2012 to 2016, the market share of Windows as a tablet OS will grow from 2.9% to 10.3%. This larger market share will be part of a growing pie:

A strong competitive landscape — including surging Android tablet shipments and robust demand for Apple’s new iPad mini — has led International Data Corporation to increase its 2012 forecast for the worldwide tablet market to 122.3 million, up from its previous forecast of 117.1 million units. In the latest forecast update of the Worldwide Quarterly Tablet Tracker, IDC also raised its 2013 forecast number to 172.4 million units, up from 165.9 million units. And by 2016 worldwide shipments should reach 282.7 million units, up from a previous forecast of 261.4 million units.

Despite the improvement for Windows, operating systems for tablets will continue to be dominated by Apple Inc.’s (NASDAQ: AAPL) iOS and Google Inc.’s (NASDAQ: GOOG) Android. iOS will have a market share of 49.7% in 2016, based on the IDC forecast. Android’s share will be 39.7%. The numbers suggest that the iPad will not completely dominate the market four years from now.

Top Chinese Brands

Using its black-box methodology, which makes its conclusions impossible to understand or critique, Millward Brown released BrandZ Top 50 Most Valuable Chinese Brands 2013. The top five part of the list had no surprises: China Mobile Ltd. (NYSE: CHU) at $50.6 billion, ICBC at $40.4 billion, China Construction Bank at $24 billion, Baidu.com Inc. (NASDAQ: BIDU) at $22.7 billion and Tencent at $20.2 billion. The value of China’s brands has been damaged along with the nation’s economic prospects. In the introduction to the study, the authors wrote:

Brand strength is key to sustained commercial success, as this year’s survey demonstrates. For the first time since we first published this study in 2011, The China Top 50 declined in brand value. The decrease, a relatively minimal 1.6 percent, is attributed mostly to the slower growth rate of China’s economy.

Monster November Employment

Job site Monster released its data on jobs, and it was better than many other reports on U.S. employment. According to its November report:

• Monster Employment Index U.S. grows seven percent on annual basis in November
• Retail Trade (up 16 percent) leads all sectors in annual growth, while real estate and rental and leasing sector continued to track double-digit growth
• Arts, Entertainment and Recreation and Utilities record negative year-over-year growth, while Management of Companies and Information remain flat
• Among the metro markets tracked by the Index, Los Angeles records top growth, while New York loses momentum

No fiscal cliff impact here.

Douglas A. McIntyre

The Hang Seng is made of a “who’s who” of China’s largest companies, which makes it a reasonable proxy for the nation’s industrial, financial and infrastructure firms. Among the largest corporations with stocks that are components of the index are Sinopec (NYSE: CEO) and PetroChina (NYSE: PTR), oil companies that are as large as any in the west. China’s largest banks and financial firms also are part of the index, as are telecom firms China Unicom (NYSE: CHU) and China Mobile (NYSE: CHL). The sectors represented make the index much broader than the DJIA as a representative of the national economy.

The presence in the Hang Seng of companies that do most of their business inside the People’s Republic indicates that capital markets investors now worry about the fire power of China’s middle class, which is by some estimates is as large as 200 million people. If this part of the economy is crippled along with the export sector, China’s economy no longer has a leg to stand on. That would bring a sharply lower growth rate in the second half of 2012 into play.

China’s central government expects 8% expansion in the third and fourth quarters. Those forecasts are already way too high. Investors in China’s stocks have figured that out.

Douglas A. McIntyre

The G20 backs aggressive actions to combat Europe’s financial problems. (Reuters)

Microsoft (NASDAQ: MSFT) did not tell its PC customers, including Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL), about its Surface tablet PC. (Reuters)

Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) will return to court to fight over whether Motorola phones violate Apple’s patents. (Reuters)

Japan Airlines will try to relist its shares and raise $6 billion in an IPO. (Reuters)

Some cities’ homes markets have exited the home price downturn much more quickly than others. (WSJ)

The leaders of Credit Suisse (NYSE: CS) are under pressure to solve a problem with their capital levels. (WSJ)

Advertisers, including Ford (NYSE: F) and Coca-Cola (NYSE: KO), say they have successful relationships with Facebook (NASDAQ: FB). (WSJ)

Barnes & Noble’s (NYSE: BKS) Nook sales falter, which hurts its earnings. (WSJ)

The bandwidth Apple’s FaceTime app uses may help carriers get more revenue from subscribers. (WSJ)

Research In Motion (NASDAQ: RIMM) begins firing workers. (WSJ)

Germany and France both show drops in consumer confidence this month. (WSJ)

Walgreen (NYSE: WAG) buys a minority interest in Europe pharmacy giant Alliance Boots for $6.7 billion. (WSJ)

Indian and Chinese oil companies to begin joint exploration programs. (WSJ)

FedEx (NYSE: FDX) says it faces more competition from delivery companies, which include shipping. (WSJ)

A key unit sale that will take MetLife (NYSE: MET) out of its status as a “bank” is delayed. (WSJ)

A short squeeze sends cotton prices up 6%. (WSJ)

Cities and states continue to cut workers, which may hamper the national economic recovery. (NYT)

The U.S. presses Germany to help lower borrowing costs for some EU nations. (FT)

Italy’s banks face a challenge as they try to raise capital levels. (Bloomberg)

China Unicom (NYSE: CHU) will cut some phone prices by 30%. (Bloomberg)

Douglas A. McIntyre

Spanish stocks were up big earlier with Spain’s IBEX 35 Index up almost 5% earlier this morning before U.S. investors were awake.  The news had European markets higher on reaction to the bailout plan for the troubled banks in Spain.  That was then.  The markets are greedy, and now the focal point is shifting back to Greece ahead of this coming weekend’s election. To show just how muted this is, the ADR of National Bank of Greece SA (NYSE: NBG) is only flat at $1.21 in New York trading against a 52-week range of $1.12 to $7.55.

Here is how the two largest Spanish banks are holding up.  Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is up 1.8% at $6.58 in New York ADR trading against a 52-week range of $5.57 to $12.13.  Its larger rival, Banco Santander, S.A. (NYSE: STD), is up 1.3% a $6.19 in New York ADR trading against a 52-week range of $5.19 to $11.89.  For another disappointment, Spain’s Telefonica SA (NYSE: TEF) is up only 0.5% in New York ADR trading after selling shares of China Unicom (NYSE: CHU) back to the Chinese to raise about $1.4 billion.  China Unicom shares are spiking up by 5% to $14.24 in New York, so you have to wonder who got the better deal here.

The broader market measure is even more muted.  iShares MSCI Spain Index (AMEX: EWP) is up 0.5% at $23.56 against a 52-week range of $20.98 to $42.94.

Maybe you can argue that the news was already getting priced in last week when the markets were rallying as the ETF and the two banks did show some share recovery ahead of the news.  Then there is the argument that Spain is only one step of a multi-hurdle process.

The DAX in Frankfurt, Germany is still up 1.4% at 6,213; the CAC 40 in Paris, France is up only 0.6% at 3,070; and the FTSE 100 in London is up 0.5% at 5,462.50.

Spain may have a lifeline thrown its way.  How this pans out in the end-game is still up for grabs.  Just do not forget that there are four other PIIGS members which have to be dealt with sooner rather than later.

JON C. OGG

Smartphones using the Android operating system from Google Inc. (NASDAQ: GOOG) have grabbed the market share lead in China with 56% share, and the iPhone from Apple Inc. (NASDAQ: AAPL) claims 9%. Nokia’s older (and cheaper) phones using the Symbian operating system had a 31% share.

Nokia’s first deal for the Lumia 800c has been signed with China Telecom Corp. (NYSE: CHA), but deals are in the works with China Mobile Ltd. (NYSE: CHL) and China Unicom (Hong Kong) Ltd. (NYSE: CHU). The company’s Lumia 900, Lumia 710 and Lumia 610c will be launched in China during the second quarter of this year.

Nokia’s brand is popular in China and the company needs to turn that popularity into sales. But because the Chinese market is more price-conscious than many others, the Lumia 800c, at about $570 without a contract, may be too costly for many potential buyers.

Paul Ausick

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

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