Apple-China deal struck: iPhones official

China Unicom (CHU) and Apple (AAPL), after months of negotiations and several false starts, have completed a deal that will flood the Chinese market with legitimate iPhones before the year is out. China Unicom is building out its 3G network that will be ready by the end of the September for most of its 140Million plus subscribers, which is the biggest cell market that Apple has ever rolled the iPhone out into.

The uncomfortable love triangle that Apple found itself within in China was one that it had to complete for the continued dominance of its ubiquitous handset. China Mobile (CHL), the biggest carrier in the country with almost 500Million subscribers, was also in the running but several public disagreements with Apple over revenue sharing and control of the AppStore, made a deal impossible for the Cupertino electronics & design company.

Apple had to make a phone specific to the marketplace in China, with a mandate that wi-fi be removed from the iPhone, but for a market that size the company was willing to make concessions. The deal with the second largest carrier, Unicom, will allow Apple a foothold into the vast, electronic friendly marketplace, where several estimates have placed "grey-market" iPhones already in the country at more than a million units. With the country getting an official retail and distribution channel for the popular device, it will be interesting to see how the consumer in China responds to pricing and rate plans.

Like most "exclusive" deals that Apple strikes, there are certainly levels of buying the carrier of choice will have to make. That part of Apple's iPhone deals have been reported in several other markets like Russia for example. Apple did not get any revenue sharing in this agreement and the phones will simply be sold by China Unicom with subsidies. Reports have been denied that already 5Million units were ordered, but speculators have suggested that this number is quite reasonable, and in some cases underwhelming as it accounts for less than 1% cellular market penetration.

Playing with shipment volumes aside, the iPhone coming to China is a huge deal for Apple and its earnings going forward. The market in China of cellphone users will bump Apple's global addressable market significantly and even if sell-through rates do not meet expectations due to the rampant "grey-market" the channel fill will certainly help Apple's unit shipments and Revenues substantially. In the last quarter, the iPhone 3GS was launched, selling 1Million units in a weekend, leading to 5Million units sold in the quarter, a quarter that was largely applauded by Wall St. So how many will Apple sell in this quarter and the next as iPhones get bought and paid for by the company's Chinese partner? The answer I would think is at least 5Million on top that had previously been reported and debunked, if not significantly more.

Disclosure: Author is long AAPL