Saturday, July 13, 2013

Report: iPhone Shortfall Could Cost Verizon $14B


Sales of Apple iPhones are not what they once were, thanks to an increasingly oversaturated smartphone market, and that could spell trouble for Verizon Wireless.

According to a report from Moffett Research, Verizon's iPhone shortfall could mean a $12 to $14 billion I.O.U. to Cupertino.

Bascially, Verizon signed a three-year contract with Apple, agreeing to sell $40 to $45 billion worth of iDevices between 2011 and 2013. But, shortfalls in the first two years have left the carrier with $23.5 billion in aggregate "purchase commitments" ? more than two times their actual iPhone sales in 2012. By comparison, AT&T's consolidated purchase commitments at the end of 2012 were just $3.8 billion.

"We emphasize again here that we have no idea what will happen at the end of 2013," the Moffett blog said. "We certainly don't expect that Verizon will have to write a check to Apple for $12 billion or so to make good on its seemingly inevitable shortfall."

However, the research firm said, "it seems likely that Apple will extract at least some consideration for a contract shortfall of this apparent magnitude."

"It isn't clear that Apple has any incentive to blow up either relationship by taking a hard line, nor is it likely that Apple would wish to advertise that two large partners are falling, or will fall, so far short of their purchase obligations," Moffett said. Still, Cupertino surely won't just ignore the carriers' commitments.

Verizon declined to comment on Moffett's report, and Apple did not immediately respond to PCMag's request for comment.

Sprint seem to be set on a straighter path than Verizon. The carrier committed in Oct. 2011 to buying $15.5 billion worth of iPhones over four years; by Moffett's count, the company has sold about $6.4 billion worth so far. If Sprint makes it through the next 10 quarters without any hiccups, the company should see sales of about $17.1 billion ? more than enough to satisfy its purchase commitment.

Earlier this year, however, it was revealed that Leap Wireless was in a situation similar to Verizon's, but Leap's shortfall was on the order of $100 million.

Moffett discovered the Verizon information in the footnotes of a Securities and Exchange Commission (SEC) filing from Vodafone, Verizon's parent company.

Despite consistently coming in at No. 2 to Samsung and the Android platform, Apple said it isn't worried. Earlier this year, CEO Tim Cook told the audience at the Goldman Sachs Technology and Internet Conference that no, the company won't hit a wall in the number of customers it can serve. In fact, the word "limit," he said, is not "in the Apple vocabulary."

Apple has sold more than 500 million iOS devices since 2007, 40 percent of which happened in 2012.

Source: http://www.pcmag.com/article2/0,2817,2421677,00.asp?kc=PCRSS05039TX1K0000762

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