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Verizon could owe Apple $14 billion off iPhone sales shortfall

post #1 of 94
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Verizon has sold more than 10 million iPhones over the last several months, but a new report finds that the nation's largest carrier could still wind up owing Apple billions of dollars for failing to meet expectations.

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Apple's iPhone has been selling more slowly than expected, thanks to the high-end smartphone market becoming somewhat saturated. A report from Moffett Research looked at the numbers and estimated that Verizon might wind up owing Apple up to $14 billion if it doesn't effectively double its iPhone sales from last year, according to the LA Times.

In 2010, Verizon reportedly agreed to $45 billion in purchase agreements through the end of this year. By Moffett's estimate, most of that money is due to Apple since Apple is one of the only manufacturers with the sway to require a purchase commitment of this fashion.

?It is likely that Apple would be reluctant to simply ignore these commitments, since many other carriers around the world are probably in a similar situation, and a simple amnesty would set an unwanted precedent,? the report reads. ?It is therefore unrealistic to think that Apple won?t extract some consideration for renegotiating these shortfalls.?

In the fourth quarter of 2012 and the first quarter of 2013, Verizon shifted more than 10 million iPhone units, with many of those being the more expensive iPhone 5. In order to meet its estimated sales commitment to Apple, Verizon would have to sell $23.5 billion worth of iPhones in 2013, or twice its 2012 iPhone sales.

Representatives from both Verizon and Apple have declined to comment on the Moffett report's contentions.
post #2 of 94
Oh, I hope not. The fair thing to do would be to allow an extension. It certainly would not be publicly nor commercially in Apple's favour to be persistent in its demands.

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post #3 of 94
I suspect Moffett's analysis is simply faulty. We don't know what the Apple-Verizon agreement actually says, but I seriously doubt there's a scenario where VZ is writing a multi-billion dollar check to Apple for iPhones not ordered. There agreement almost certainly specifies what the effect of not meeting sales goals are that are less draconian (or Verizon would have been insane to agree to the deal).
post #4 of 94

Easy solution. The new iPhone comes out this fall so Verizon could order more of those devices to make up any shortfall this year and sell them into next year.

 

Unless Verizon has also committed to selling the same amount next year.

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post #5 of 94

So that adds up to about what 20 million iPhones? Does that come off of the shipped or sold numbers then?

So now is Verizon going to have a BOG4 sale?

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post #6 of 94
What's moffett's methodology?
post #7 of 94
That's what they get for telling their retail employees to push Androids and turn people away from iPhones.
post #8 of 94
So verizon agreed to sell 70 million iphones in two years... (45billion/630)

Does that sound realistic?

How does this guy know what the verizon apple contract is?
post #9 of 94
BOGOF iPhone 5S sale coming soon?

I'm still sticking with AT&T though cus I apparently hate myself lol.
post #10 of 94
What a dumb move on Verizon's part to order so many more iPhones for the second year. Why did they expect to double their sales from 2012 in the first place, especially since more carriers than ever now carry the iPhone?
post #11 of 94
I'd be interested to know what impact Verizon's new "Share Everything" plans (and their elimination of individual plans) has had on sales. When Best Buy had their trade-in deal recently (which amounted to getting a free 16GB iPhone 5), I finally convinced my wife to upgrade from her ordered-on-the-first-day Verizon iPhone 4. Only problem: "Share Everything" would have dramatically increased her monthly bill, and there were no other options.

So, after talking it over, she moved to AT&T, and we're now on a Family Plan that saves us quite a bit over what we used to pay individually. "Share Everything" plans are a terrible deal for 1-2 phone households, and Verizon's insistence that everybody move to these plans definitely cost them a happy customer in our case.
post #12 of 94
Quote:
Originally Posted by blackbook View Post

That's what they get for telling their retail employees to push Androids and turn people away from iPhones.

 

Where did you hear that?

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post #13 of 94
Quote:
Originally Posted by Relic View Post

Where did you hear that?

I've heard many first hand stories of people going to Verizon to buy an iPhone but being convinced to buy an Android phone instead.

Tim Cook seems to agree this is a legitimate problem because he commented on their anti-iPhone practices at Apples latest retail meeting.
post #14 of 94
Quote:
Originally Posted by EricTheHalfBee View Post

Easy solution. The new iPhone comes out this fall so Verizon could order more of those devices to make up any shortfall this year and sell them into next year.

Unless Verizon has also committed to selling the same amount next year.

They're probably committed to sell more next year.
post #15 of 94
Quote:
Originally Posted by blackbook View Post

I've heard many first hand stories of people going to Verizon to buy an iPhone but being convinced to buy an Android phone instead.

Tim Cook seems to agree this is a legitimate problem because he commented on their anti-iPhone practices at Apples latest retail meeting.

Funny because my experience has been the opposite. I frequently visit the VZW store by me because it close and the salesperson is quite lovely, and I almost always see someone buying a iPhone that's coming off a Android device.
post #16 of 94
I have never even been inside a Verizon store but listening to friends and also on forums it seems that new or upgrade customers are steered away from the iPhone by the sales reps. They do their best to push you towards an Android device I suppose because of a higher commission. Who can blame them though, they have bills to pay and why wouldn't you do your best to bring home more money for your family. Apple probably needs to do a better job to match the commission or at least increase it to offer an incentive for store sales reps not to trash the iPhone and push Android. These employees aren't making big salaries and of course they are going to try and make the most money they can. If you get an extra $50 from signing up a customer with an S4 vs. $0 for signing them up with an iPhone 5 what would you do? I have no idea if this is true or not or how much the spiffs are so please correct me if I am mistaken. Does anyone know if these spiffs exist and if so how much?

 

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post #17 of 94
I often talk and use data at the same time so that is a deal killer for me with Verizon.
post #18 of 94

I doubt the figures. He takes Verizons known purchasing commitments and assumes the bulk are iPhones. No real proof. 

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post #19 of 94
Apple does 5 year contracts. If they don't meet that contract, Verizon will most certainly have to pay the difference. It's incumbent upon the CEO to do his job or get canned at Verizon.
post #20 of 94
Quote:
Originally Posted by blackbook View Post


I've heard many first hand stories of people going to Verizon to buy an iPhone but being convinced to buy an Android phone instead.

Tim Cook seems to agree this is a legitimate problem because he commented on their anti-iPhone practices at Apples latest retail meeting.

Actually, Verizon has said that they don't condone such behavior. 

 

The reason for people pushing other phones is quite simple.  There's a lower commission on iPhones because of what Apple keeps for themselves.

 

Verizon salespeople say they make about $5-10 from an iPhone, versus $30-50 for others.  Best Buy salespeople say they get nothing for an iPhone;  instead they must make money from accessories.

 

http://jeffstern.co/2012/08/11/verizon-android-over-iphone/

 

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post #21 of 94
Quote:
Originally Posted by blackbook View Post

That's what they get for telling their retail employees to push Androids and turn people away from iPhones.


That's what I was thinking too. This rumor seems unlikely, but if it is, maybe Verizon will have to start pushing iPhones the way they have traditionally pushed Android phones, which would be great for Apple. It shouldn't be that hard.

 

Maybe you can't blame people for pushing Android phones if they are getting better commissions, but if they pretend that they think Android phones are better when they actually don't, they're just being dishonest to make a quick buck, which in my eyes is tantamount to fraud unless you can safely assume that the customers know that the seller has ulterior motives (as is the case when a vendor claims that their own product is better when it actually isn't).

post #22 of 94
Quote:
Originally Posted by TzTerri View Post

I often talk and use data at the same time so that is a deal killer for me with Verizon.

I often walk and use data at the same time--that's why I went with the original iPhone on AT&T.

post #23 of 94
Quote:
Originally Posted by malax View Post

I suspect Moffett's analysis is simply faulty. We don't know what the Apple-Verizon agreement actually says, but I seriously doubt there's a scenario where VZ is writing a multi-billion dollar check to Apple for iPhones not ordered. There agreement almost certainly specifies what the effect of not meeting sales goals are that are less draconian (or Verizon would have been insane to agree to the deal).

Actually yes the agreement could be that 'draconian' as you put it. The fault would be in assuming that only apple could have set up such deals. It's possible this money is across several hardware sources despite what he thinks

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post #24 of 94
Quote:
Originally Posted by geekdad View Post

Actually, Verizon has said that they don't condone such behavior. 



Not condoning doesn't mean it doesn't happen. Anymore than the executives at Best Buy likely don't condone sales staff claiming to be out of stok on a high ticket item because the buyer refused to get the extended service package, but it could still be happening

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post #25 of 94
Quote:
Originally Posted by Retrogusto View Post


That's what I was thinking too. This rumor seems unlikely, but if it is, maybe Verizon will have to start pushing iPhones the way they have traditionally pushed Android phones, which would be great for Apple. It shouldn't be that hard.

 

Maybe you can't blame people for pushing Android phones if they are getting better commissions, but if they pretend that they think Android phones are better when they actually don't, they're just being dishonest to make a quick buck, which in my eyes is tantamount to fraud unless you can safely assume that the customers know that the seller has ulterior motives (as is the case when a vendor claims that their own product is better when it actually isn't).

Fraud is a pretty strong word. If you have a family to feed and you know that by pushing Android devices hard you could gain an extra $1,000 a month what would you do? Salesman in every company push products and services they may not think is the best. This happens every day in every industry. Imagine if an insurance agent were able to sell car insurance from both State Farm and Geico. Let's say that State Farm has the best policy with higher customer satisfaction, lower deductibles, and just an overall better policy. If State Farm paid an agent $100 for signing up a new customer and Geico paid that agent $200 which company policy do you think he would be pushing? Paying your bills will always take priority and you cannot blame sales reps for trying to take care of their families. 

 

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post #26 of 94

I hope they've adjusted their expectations for the 5S, then, or Verizon is really in for a world of hurt.
 

post #27 of 94
Quote:
Originally Posted by charlituna View Post


Not condoning doesn't mean it doesn't happen. Anymore than the executives at Best Buy likely don't condone sales staff claiming to be out of stok on a high ticket item because the buyer refused to get the extended service package, but it could still be happening

you are right......but they are telling them too not sell iPhones then lose 14 Billion either.....

Would that make sense to you? Instruct their sales people to steer away from the iPhone then lose 14 Billion dollars?

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post #28 of 94
Quote:
Originally Posted by charlituna View Post

Not condoning doesn't mean it doesn't happen. Anymore than the executives at Best Buy likely don't condone sales staff claiming to be out of stok on a high ticket item because the buyer refused to get the extended service package, but it could still be happening

 

They're only saying that if it's happening, it's because of the commissions that Apple's prices to Verizon allow, not because of some corporate policy.

 

Such a policy would make no sense, especially assuming they really have to sell so many iPhones.   If anything, you'd expect a policy favoring iPhones in that case.

post #29 of 94
Quote:
Originally Posted by geekdad View Post

you are right......but they are telling them too not sell iPhones then lose 14 Billion either.....
Would that make sense to you? Instruct their sales people to steer away from the iPhone then lose 14 Billion dollars?

I highly doubt that they're instructed to sell more Android devices, but obviously a worker will do whatever is best for their pocket regardless of what they've been instructed to do. I could see VZW offering a equal commission to push iPhones in hopes it'll lessen it's liability with Apple.
post #30 of 94
Perhaps it's Verizon's fault? VZ has been advertising other phones and dissing Apple's iPhone 5, if I'm not mistaken. So VZ was making a business decision that may have backfired. Too bad.
post #31 of 94
Quote:
Originally Posted by waldobushman View Post

Perhaps it's Verizon's fault? VZ has been advertising other phones and dissing Apple's iPhone 5, if I'm not mistaken. 

 

Got a link to a negative iPhone ad that aired after they started carrying the iPhone? 

post #32 of 94

Verizon overestimated iphone sales?  How could that be?  hope iphone 5s can make it up in time.

post #33 of 94
Quote:
Originally Posted by waldobushman View Post

Perhaps it's Verizon's fault? VZ has been advertising other phones and dissing Apple's iPhone 5, if I'm not mistaken. So VZ was making a business decision that may have backfired. Too bad.

I think the spiff's aka commission to sales rep comes from the manufactures not from Verizon or Best Buy. If that is the case Apple can always choose to match the spiff or at least increase it enough to incentivize them enough to try a little harder. I don't think Verizon or Best Buy can do anything to get their reps to push the iPhone if the bonus money is coming from Samsung, HTC, or Motorola directly other than ban spiff's completely which I doubt they would ever do since this is a like a free subsidy to their employees they don't have to pay. 

 

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post #34 of 94
Quote:
Originally Posted by Soloman View Post


I highly doubt that they're instructed to sell more Android devices, but obviously a worker will do whatever is best for their pocket regardless of what they've been instructed to do. I could see VZW offering a equal commission to push iPhones in hopes it'll lessen it's liability with Apple.

With the BILLIONS of dollars involved. I am sure VZW gets daily...weekly.....monthly...quarterly...reports on sales for all devices they sell. If anything you would expect them to mandate their sales staff to push the iphone.

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post #35 of 94
Here's a thought. Offer debtors the option pay it off, at a discount for incentive, with shares of their company. Maybe Apple can get its own telecom slowly taking over from within.
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post #36 of 94
I agree with others I doubt that Verizon signed on to sell the stated number of iPhones. I do however think that these telcos who have deals with Apple that state they must sell X number of iPhones in a given time frame should re-examine allowing sales people to receive spiffs (incentives) to sell Android phones. This seems to be in direct opposition to what is the best for the health of the overall company as well as distorting the market.
 
I doubt anything comes of this but ultimately, Apple may demand the end of these incentives paid to sales staff that give Android and advantage while creating a disincentive to selling iPhones.

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post #37 of 94
Hey Verizon...

I'll buy two new iPhone 5's if you let me keep my unlimited data plan.
post #38 of 94
Quote:
Originally Posted by gwmac View Post

I think the spiff's aka commission to sales rep comes from the manufactures not from Verizon or Best Buy. If that is the case Apple can always choose to match the spiff or at least increase it enough to incentivize them enough to try a little harder. I don't think Verizon or Best Buy can do anything to get their reps to push the iPhone if the bonus money is coming from Samsung, HTC, or Motorola directly other than ban spiff's completely which I doubt they would ever do since this is a like a free subsidy to their employees they don't have to pay. 

This is exactly why Tim Cook wants potential customers to go to an Apple Retail Store.

Apple doesn't want to pay spiffs to BestBuy or Verizon employees.

Why do that when Apple specialists will do a better job for free(or at least close to it)!

post #39 of 94
A novel approach...if not already mentioned...would be to discount the services they provide in the hopes that would spur iPhone sales. I would switch to Verizon in a quick minute if they reduced plans by 30% or greater. If they are going to loose money for not meeting a contractual agreement, only Apple wins. If they drop mobile contract schemes monthly costs, resulting in more customers, Verizon and consumers win.
post #40 of 94
Quote:
Originally Posted by KDarling View Post

Quote:
Originally Posted by charlituna View Post

Not condoning doesn't mean it doesn't happen. Anymore than the executives at Best Buy likely don't condone sales staff claiming to be out of stok on a high ticket item because the buyer refused to get the extended service package, but it could still be happening

 

They're only saying that if it's happening, it's because of the commissions that Apple's prices to Verizon allow, not because of some corporate policy.

 

Such a policy would make no sense, especially assuming they really have to sell so many iPhones.   If anything, you'd expect a policy favoring iPhones in that case.

 

However, I've also noticed that all the advertising material that they send out encouraging me to upgrade one of my phones (an IP4) is pushing Android devices. So far I haven't received a single communication that mentions iPhones.

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