or Connect
AppleInsider › Forums › Mobile › iPhone › Apple's iPhone so popular Verizon taking short-term hit
New Posts  All Forums:Forum Nav:

Apple's iPhone so popular Verizon taking short-term hit

post #1 of 28
Thread Starter 
The success of Apple's iPhone on the Verizon Wireless network has resulted in a short-term impact of as much as 6 percent to the carrier's gross margins as it waits to recoup its subsidies for the best-selling handset.

Verizon revealed on Wednesday it had sold 4.2 million iPhones in the last quarter of 2011, more than double the amount sold in the previous quarter. However, the notable growth came with a price, as iPhone subsidies cut into the company's margins.

Chief Financial Officer Francis Shammo indicated during an investor conference that Apple's handset would eat into Verizon's gross margins by as much as 500 to 600 basis points (5 to 6 percent), as noted by Bloomberg. The wireless operator's margins stood at 47.8 percent in the third quarter of 2011 and have fallen "to a range of 42 percent to 43 percent" in the fourth quarter, Reuters reported Shammo as saying.

Despite the decreased margins, Shammo said Verizon was pleased with smartphone uptake on its network.

"This gives us a great momentum going into 2012," he said, adding that the company had gotten "extremely close" to its goal of 11 million iPhone sales in 2011. In fact, supply was a limiting factor for Verizon, as it finished the year with 120,000 backlogged iPhone orders.

Shares of Verizon dipped $0.52, or 1.31 percent, on Wednesday in light of Shammo's revelations.

One recent report hinted that Verizon was driving up the prices of high-end Android phones in order to make up money lost from larger subsidies for the iPhone. For instance, the Motorola Droid RAZR and Google/Samsung Galaxy Nexus are priced at $299, despite having the same no-contract $649 price as the iPhone 4S, which sells for $199 on contract. As such, it appears Apple is receiving a $450 subsidy, while Android licensees get just $350.

Rival carrier AT&T will have outpaced Verizon in the fourth quarter with sales of 6 million smartphones in just the first two months of the period, compared to Verizon's overall smartphone sales of 6.4 million in the December quarter. AT&T, which enjoyed several years of iPhone exclusivity in the U.S., has endured its own margin squeeze due to iPhone subsidies.

Verizon's short-term margin dip will likely result in Apple's gain. The Cupertino, Calif., company is set to report its best quarter ever on Jan. 24. Apple has said it is "confident" it will set all-time records for iPhone and iPad sales in the holiday quarter.
post #2 of 28
Verizon Is Doomed.

Or at least beleaguered.

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply
post #3 of 28
Quote:
Originally Posted by Tallest Skil View Post

Verizon Is Doomed.

Or at least beleaguered.

Was AT&T similarly beleaguered when it had the iPhone monopoly? Don't recall them having to absorb a lower margin because of the iPhone.
post #4 of 28
Quote:
Originally Posted by Tallest Skil View Post

Verizon Is Doomed.

Or at least beleaguered.

With a low margin of 42%? Yeah doomed...all the way to the bank
post #5 of 28
Quote:
Originally Posted by Bouncerman View Post

With a low margin of 42%? Yeah doomed...all the way to the bank

Lol. Nice

2012 27" iMac i7, 2010 27" iMac i7, 2011 Mac Mini i5
iPad Air, iPad Mini Retina, (2) iPhone 5S, iPod Touch 5
Time Capsule 5, (3) AirPort Express 2, (2) Apple TV 3

Reply

2012 27" iMac i7, 2010 27" iMac i7, 2011 Mac Mini i5
iPad Air, iPad Mini Retina, (2) iPhone 5S, iPod Touch 5
Time Capsule 5, (3) AirPort Express 2, (2) Apple TV 3

Reply
post #6 of 28
Quote:
Originally Posted by Tallest Skil View Post

Verizon Is Doomed.

Or at least beleaguered.

[/S]

Thought I should fix that for you before all those that don't get it start to roast you...
na na na na na...
Reply
na na na na na...
Reply
post #7 of 28
Quote:
Originally Posted by stelligent View Post

Was AT&T similarly beleaguered when it had the iPhone monopoly? Don't recall them having to absorb a lower margin because of the iPhone.

I seem to recall something on the matter.

AT&T basically sends a $400 check to Apple for every iPhone they sell.

I also remember something about AT&T not making a profit on an iPhone customer until the 17th month of a 24 month contract... citing high data use and whatnot.

http://news.cnet.com/8301-13579_3-10371785-37.html

Not sure if it was ever verified, though.
post #8 of 28
Quote:
Originally Posted by AppleInsider View Post

For instance, the Motorola Droid RAZR and Google/Samsung Galaxy Nexus are priced at $299, despite having the same no-contract $649 price as the iPhone 4S, which sells for $199 on contract. As such, it appears Apple is receiving a $450 subsidy, while Android licensees get just $350.

So let me get this straight, the carriers don't get a cut for handling the sale? The consumer buys an iPhone for $199 and that money plus the $450 subsidy goes directly to Apple? This tells me that the carrier's role is strictly for the contract....yes or no?

Why does Apple bashing and trolling make people feel so good?

Reply

Why does Apple bashing and trolling make people feel so good?

Reply
post #9 of 28
Colour me clueless.

Isn't VZ making back the money throughout the life of the iPhone. It is not like what RIM took when they wrote off more than $450m for the playbook.

And these guys are also good at nickel and dime their customers.

Are these analysts missing the forest for the trees.
post #10 of 28
Quote:
Originally Posted by AppleInsider View Post

the notable [iPhone] growth came with a price, as iPhone subsidies cut into the company's margins.
[ View this article at AppleInsider.com ][/url][/c]

According to VZW customer care, the iPhone has been on backorder almost since the 4s came out. The iPhone is the only handset they will not allow early upgrades on. VZW customer care has twice told me, "The iPhone has been classified as "iconic" and is not available for early upgrades." The same reps told me that any other smartphone was available, except the iPhone. They are doing everything possible to steer customers away from the iPhone, presumably because of the $400 paid to Apple for each iPhone.
post #11 of 28
Quote:
Originally Posted by AppleInsider View Post

<...>
One recent report hinted that Verizon was driving up the prices of high-end Android phones in order to make up money lost from larger subsidies for the iPhone. For instance, the Motorola Droid RAZR and Google/Samsung Galaxy Nexus are priced at $299, despite having the same no-contract $649 price as the iPhone 4S, which sells for $199 on contract. As such, it appears Apple is receiving a $450 subsidy, while Android licensees get just $350.
<...>

So, even though iPhones are selling like hotcakes, Verizon still subsidizes them more than Android phones? Where's the logic in that?
post #12 of 28
Quote:
Originally Posted by stelligent View Post

Was AT&T similarly beleaguered when it had the iPhone monopoly? Don't recall them having to absorb a lower margin because of the iPhone.

ATT gave a similar warning a few weeks ago, tho IIRC it was due to rising smartphone sales in general (nearly all of them are subsidized) and not specifically iPhone sales. Sprint is going to have several quarters with paper losses too.

Apple is said to drive a very hard bargain.
melior diabolus quem scies
Reply
melior diabolus quem scies
Reply
post #13 of 28
Quote:
Originally Posted by Dickprinter View Post

So let me get this straight, the carriers don't get a cut for handling the sale? The consumer buys an iPhone for $199 and that money plus the $450 subsidy goes directly to Apple? This tells me that the carrier's role is strictly for the contract....yes or no?

That is what many people don't get. The carriers are not paying full retail price for an iPhone. They are treated like a store like Best Buy, which buys the phone at whole sale cost. With that said, whole sale cost is probably not much more than $50 below retail. The mark up is small. I used to work at Best Buy a few Years ago. On a $1, 000 iMac sale, Best Buy was only making about $50.
post #14 of 28
Quote:
Originally Posted by DrDoppio View Post

So, even though iPhones are selling like hotcakes, Verizon still subsidizes them more than Android phones? Where's the logic in that?

It's called the lure of the siren [Apple] and her cutthroat contracts. Apple requires the substantial subsidy, and they have the leverage to get it. Verizon needs the iPhone to stop the exodus to AT&T that was occurring.
GIGO. The truth in all of life.
Reply
GIGO. The truth in all of life.
Reply
post #15 of 28
This is precisely why T-Mobile is unable to work with Apple to get the iPhone on their network. They simply can't afford to loan money to Apple.
post #16 of 28
Quote:
Originally Posted by Neo42 View Post

This is precisely why T-Mobile is unable to work with Apple to get the iPhone on their network. They simply can't afford to loan money to Apple.

Not really true. If you read T-Mobile's press release from October 20 of this year, they clearly want the iPhone; it's in Apple's court. You could be correct that one of the holding points is they're wrangling over the contract, but I would highly doubt it. The more logical reason would be as they state, that they've asked Apple and are just waiting for Apple to get back to them with a phone that'll work with full functionality on their network and a contract to sign.

http://newsroom.t-mobile.com/article...ones-statement
GIGO. The truth in all of life.
Reply
GIGO. The truth in all of life.
Reply
post #17 of 28
Quote:
Originally Posted by TBell View Post

That is what many people don't get. The carriers are not paying full retail price for an iPhone. They are treated like a store like Best Buy, which buys the phone at whole sale cost. With that said, whole sale cost is probably not much more than $50 below retail. The mark up is small. I used to work at Best Buy a few Years ago. On a $1, 000 iMac sale, Best Buy was only making about $50.

Correct, the AppleInsider writer (and a few other forum participants) don't understand the notion of wholesale pricing.

The $649 iPhone (unsubsidized) sold to a customer at $199 with a two-year contract at a Verizon Wireless (or other carrier) retail store probably nets VZW about $25 after Apple is paid their subsidy (which pundits have guesstimated to be around $350).

The wholesale pricing on Android handsets is likely lower, as well as the subsidy payment amounts to Android licensees. That's probably why Android handset manufacturers are making way less profit.
post #18 of 28
I imagine t-mobile are just playing a marketing game.

To supply the iPhone they simply have to raise their prices and maybe that is what they are hinting at. Maybe they do not have a flexible 40% + margin like Verizon?
.
post #19 of 28
Quote:
Originally Posted by AppleInsider View Post

The success of Apple's iPhone on the Verizon Wireless network has resulted in a short-term impact of as much as 6 percent to the carrier's gross margins as it waits to recoup its subsidies for the best-selling handset.

Verizon revealed on Wednesday it had sold 4.2 million iPhones in the last quarter of 2011, more than double the amount sold in the previous quarter. However, the notable growth came with a price, as iPhone subsidies cut into the company's margins.

Chief Financial Officer Francis Shammo indicated during an investor conference that Apple's handset would eat into Verizon's gross margins by as much as 500 to 600 basis points (5 to 6 percent), as noted by Bloomberg. The wireless operator's margins stood at 47.8 percent in the third quarter of 2011 and have fallen "to a range of 42 percent to 43 percent" in the fourth quarter, Reuters reported Shammo as saying.

Despite the decreased margins, Shammo said Verizon was pleased with smartphone uptake on its network.

"This gives us a great momentum going into 2012," he said, adding that the company had gotten "extremely close" to its goal of 11 million iPhone sales in 2011. In fact, supply was a limiting factor for Verizon, as it finished the year with 120,000 backlogged iPhone orders.

Shares of Verizon dipped $0.52, or 1.31 percent, on Wednesday in light of Shammo's revelations.

One recent report hinted that Verizon was driving up the prices of high-end Android phones in order to make up money lost from larger subsidies for the iPhone. For instance, the Motorola Droid RAZR and Google/Samsung Galaxy Nexus are priced at $299, despite having the same no-contract $649 price as the iPhone 4S, which sells for $199 on contract. As such, it appears Apple is receiving a $450 subsidy, while Android licensees get just $350.

Rival carrier AT&T will have outpaced Verizon in the fourth quarter with sales of 6 million smartphones in just the first two months of the period, compared to Verizon's overall smartphone sales of 6.4 million in the December quarter. AT&T, which enjoyed several years of iPhone exclusivity in the U.S., has endured its own margin squeeze due to iPhone subsidies.

Verizon's short-term margin dip will likely result in Apple's gain. The Cupertino, Calif., company is set to report its best quarter ever on Jan. 24. Apple has said it is "confident" it will set all-time records for iPhone and iPad sales in the holiday quarter.

No no! this is nothing but a rounding error! Mark my words!
post #20 of 28
Quote:
Originally Posted by Gatorguy View Post

ATT gave a similar warning a few weeks ago, tho IIRC it was due to rising smartphone sales in general (nearly all of them are subsidized) and not specifically iPhone sales. Sprint is going to have several quarters with paper losses too.

Apple is said to drive a very hard bargain.

I also seem to have the original AT&T iphone agreement giving Apple a share of the data plan revenue?

Anyhow, why would this be an issue for AT&T now? GIven that this is not the first year they are offering the iPhone, data plan revenues should be catching up to subsidies paid to Apple. If it has not caught up, there is a problem in the carriers' business plan.
post #21 of 28
Quote:
Originally Posted by stelligent View Post

I also seem to have the original AT&T iphone agreement giving Apple a share of the data plan revenue?

Now that you mention it, I think you may be right. I'd be a bit surprised that would still be one of the contract terms tho. Pricing has changed a lot in the past couple of years, coupled with two other telcos offering what used to be an ATT exclusive.
melior diabolus quem scies
Reply
melior diabolus quem scies
Reply
post #22 of 28
There was a poster who felt Verizon and CDMA were superiour techs. He would use AT&T's disclousure of a short term hit after the drop of profit sharing to prove some point about how AT&T and the iPhone were ultimately doomed. Who was that poster and what point was he trying to make? My memory is failing me.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #23 of 28
Quote:
Originally Posted by YTB View Post


According to VZW customer care, the iPhone has been on backorder almost since the 4s came out.

This is true. I went to my Verizon store to buy an iPhone 4S. All I could do is order it.

I ordered it on December 19. It didn't ship until the 23rd... and I got it on the December 27th.
post #24 of 28
Quote:
Originally Posted by Gatorguy View Post

Now that you mention it, I think you may be right. I'd be a bit surprised that would still be one of the contract terms tho. Pricing has changed a lot in the past couple of years, coupled with two other telcos offering what used to be an ATT exclusive.

They dropped that contract term when iPhones went subsidized.
post #25 of 28
Quote:
Originally Posted by stelligent View Post

Anyhow, why would this be an issue for AT&T now? GIven that this is not the first year they are offering the iPhone, data plan revenues should be catching up to subsidies paid to Apple. If it has not caught up, there is a problem in the carriers' business plan.

While the iPhone is clearly profitable to AT&T remember that with each new iPhone release we're seeing a huge jump in demand. This time around it appears to be more than double YoY. That's a lot of extra dough AT&T has to pay to Apple for the month/quarter, or however they negotiated the payments.

AT&T really wanted the profit sharing to stay because they don't have to pay such huge lump sums. At the time this wasn't an issue for the other carriers but they were short sighted and Apple lost this position would would have helped everyone involved, especially Android users where the longer the device is used the more money the vendor gets from that device from a monthly percentage of carrier revenue. You bet your ass they would be offering longterm OS updates to their devices instead of just letting them fester right after they were sold.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #26 of 28
Quote:
Originally Posted by AdamC View Post

Colour me clueless.

Isn't VZ making back the money throughout the life of the iPhone. It is not like what RIM took when they wrote off more than $450m for the playbook.

And these guys are also good at nickel and dime their customers.

Are these analysts missing the forest for the trees.

I don't think the analysts are missing it - it's the people quoting the analysts (Read: Appleinsider) who miss the point.

This is quite common in the cell phone industry. Apple gets the entire wholesale price from the carrier up front (i.e, $650). The carrier keeps the $199 that they sell the phone for - and then collect the remainder of their money (plus a profit if they are doing their jobs properly) over the life of the contract.

It is pretty much standard practice that a carrier will not be 'in the black' for a given customer until well into the contract. So, it is true that the more expensive phones the carrier sells, the more cash they will have tied up until sometime later. In the end, though, the more expensive phones you sell, the more money you make in the long run.

So it's simply a cash flow issue - carrier spends cash now but will recover it (plus a profit) later. No big deal unless you don't have the cash or borrowing ability to handle it.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
Reply
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
Reply
post #27 of 28
Quote:
Originally Posted by Michael Scrip View Post

This is true. I went to my Verizon store to buy an iPhone 4S. All I could do is order it.

I ordered it on December 19. It didn't ship until the 23rd... and I got it on the December 27th.

I'm curious why you didn't go to an Apple store? Everyone I go into one, at least a few people are leaving with iPhone 4Ses. In fact, just before Xmas, many (all?) Apple stores have a special area set up for rapid purchasing, with a stack of iPhones, iPads, iPods and MacBooks all ready to go. All to say, you could have walked out with a device.
post #28 of 28
Quote:
Originally Posted by SolipsismX View Post

While the iPhone is clearly profitable to AT&T remember that with each new iPhone release we're seeing a huge jump in demand. This time around it appears to be more than double YoY. That's a lot of extra dough AT&T has to pay to Apple for the month/quarter, or however they negotiated the payments.

AT&T really wanted the profit sharing to stay because they don't have to pay such huge lump sums. At the time this wasn't an issue for the other carriers but they were short sighted and Apple lost this position would would have helped everyone involved, especially Android users where the longer the device is used the more money the vendor gets from that device from a monthly percentage of carrier revenue. You bet your ass they would be offering longterm OS updates to their devices instead of just letting them fester right after they were sold.

What you are saying makes sense. But here's my thinking - regardless of YoY increase in iPhone sales, the installed base for AT&T > new iPhone customers. What each pre-existing customer pays in a year should be sufficient to offset the subsidy AT&T owes Apple on each new iPhone sold. So, from year to this year, why would AT&T have to issue a warning on reduction in GM? (I don't know for a fact they did, but someone above stated so.)
New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: iPhone
AppleInsider › Forums › Mobile › iPhone › Apple's iPhone so popular Verizon taking short-term hit