Apple's iPhone so popular Verizon taking short-term hit
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.
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.
Comments
Or at least beleaguered.
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.
Verizon Is Doomed.
Or at least beleaguered.
With a low margin of 42%? Yeah doomed...all the way to the bank
With a low margin of 42%? Yeah doomed...all the way to the bank
Lol. Nice
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...
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.
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?
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.
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.
<...>
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?
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.
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.
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.
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
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.
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?
.
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.
[ View this article at AppleInsider.com ]
No no! this is nothing but a rounding error! Mark my words!
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.
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.