Having missed the boat last quarter, Wall Street is taking a second look at China

Click to enlarge. Source: Auriga from company reports.

FORTUNE -- I can count on one hand the number of Wall Street analysts whose estimates of Apple's (AAPL) iPhone sales last quarter came within 2 million units of the correct answer (35.1 million).

Most of them were so distracted by the predictable fall-off in Verizon (VZ) and AT&T (T) activations after Christmas that they missed the significance of the launch of the iPhone 4S in China just in time for Chinese New Year -- the biggest holiday gift-buying season in the world's biggest mobile phone market.

(See Asymco's Horace Dediu's only slightly tongue-in-cheek primer on how Earth's axis is tilted relative to the orbital plane it follows around the Sun.)

This may explain why at least two analysts issued notes Monday highlighting the importance of China to Apple's future iPhone sales.

The chart above was posted by Auriga's Kevin Dede, whose estimate of Q2 iPhone sales was 28 million units, roughly 7 million short. He now estimates that between them, China's three largest carriers are adding 10 to 12 million new 3G subscribers per month, most of them potential iPhone customers.

Not to be outdone, Deutsche Bank's Chris Whitmore, whose iPhone estimate of 26 million units was the worst we saw last quarter, issued a note entitled "iPhone is just getting started in China."

"In 1Q," he writes, "we estimate Apple has captured less than 15% share of China Unicom and China Telecom's combined 3G subscriber base. Over the next few years, we expect Apple to benefit from strong 3G sub growth at these two partners while continuing its path of share gains. If Apple reaches 20-25% penetration of this subscriber base by the end of 2013, we estimate iPhone unit sales in China would approach ~25M units in 2012 and ~35M units in 2013. Any benefit from a future partnership with China Mobile would be additive to these estimates."

Indeed.

UPDATE: In an e-mail sent Monday afternoon, Whitmore notes that although his Q2 model called for Apple to sell 26 million iPhones, he issued a note on April 23 that contained this sentence:

"We believe our expectation of 26.0M iPhones will prove too conservative and we believe units will be in the 33-34M range."

This is an increasingly common practice among Apple analysts. They hedge a published unit sales estimate by suggesting that it may be too low. For our purposes, however, we have to stick with the published estimate until it is formally revised.