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Verizon takes a loss, but grows customer base, solidifying its #1 spot

Maybe Sprint Nextel Corp.'s (Sbold iPhone gamble wasn't such a bad idea after all.  At a time when many predicted Apple, Inc. (AAPL) to be fading in the smartphone race after getting outsold by Samsung Electronics Comp., Ltd.'s (KS:005930) slick Android handsets, Apple surged back with the launch of the iPhone 4S and its iconic voice-controlled assistant, Siri.  Analyst numbers place Apple in a near dead heat with Android in December U.S. smartphone sales.

And the situation is looking even better for Apple based on the just-announced earnings of Verizon Wireless, the joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD).  

For Verizon Wireless it was a lukewarm quarter as a pension charge and another one-time expense brought a net loss of $2.02B USD ($0.71 USD/share), versus the $1.48B USD profit ($0.52 USD/share) it would have recorded without these charges.  The company did solidify its American lead, adding 1.2 million new contract subscribers (and 1.46m total new subscribers) bringing its total (contract and non-contract) customers to 108.7m and its contract customer base to 87.4m.

Smartphone sales rose from 39 percent in Q3 2011 to 44 percent in Q4 2011.  And the iPhone was king at Verizon.  Of the 7.7m smartphones sold by the carrier in Q4 2011, 4.3m (~55%) were iPhones.  Again, take that figure in -- the iPhone outsold all Android phones combined on America's largest carrier.

iPhone Lines Verizon
The iPhone remains a top draw at Verizon. [Image Source: Reuters]

Of course Verizon pays more for iPhones that the initial carrier AT&T, Inc. (T) did.  And Sprint is reportedly paying even more -- so maybe it isn't such a good deal, after all.

It's certainly a good deal for Apple, though, who reportedly pulled in almost $600 USD per Verizon iPhone sold, on models that retail for $200 USD with contract.  Verizon is doing its best to recoup this capital expenditure, with a slew of overage fees.  Reportedly the average iPhone bill on Verizon was around $100 USD with all the taxes and fees added [source].  Verizon likely pockets $80 of this, meaning that it will haul in $1,920 over the duration of a contract.  But it has to deal with the significant costs of network upgrades, power use, land use, employee pay, and more.  

Some analysts are convinced that a net profit on an iPhone may be a fatalistic quixotic fantasy.  Sanford Bernstein analyst Craig Moffett says Verizon is following in the line of AT&T in deluding itself that it will someday see a profit, but consistently failing to do so.  He writes, "The earnings pop will always be a year away."

Still, if America's third and fourth largest carriers -- Sprint and Deutsche Telekom AG's (ETR:DTE) T-Mobile USA -- collapse under their respective debt, Verizon and AT&T could soon be able to significantly unilaterally increase contract rates, solving both companies' iPhone profitability dilemma.

T-Mobile iPhone
The collapse of T-Mobile and Sprint -- a possible scenario -- may hold the key to AT&T and Verizon finally profiting off of their expensive iPhone commitments. [Source: T-Mobile]

Apple is also extremely well positioned under such a scenario, given that it's the top selling model at Verizon and likely near the top at AT&T, as well.  The first major test for Apple, though, will be how it responds to the inevitable need to reinvent iOS.  On the one hand it can't sit still as Google Inc. (GOOG) unveils its slick latest Android build, Android 4.0 "Ice Cream Sandwich".  On the other hand, Apple must tread the fine line of avoiding alienating its largely non-technophile customer base with too gaudy an interface.

Android 4.0 Ice Cream Sandwich
Android 4.0 "Ice Cream Sandwich" [Image Source: Google]

For now, though, Apple and its fans can simply savor the thrill of being back near the top of the U.S. smartphone market -- even if challenges await.

Source: Verizon Wireless



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RE: In Q3, Q4, or both?
By JasonMick (blog) on 1/24/2012 4:59:20 PM , Rating: 3
quote:
Don't know how I missed that. Guess there were a lot of numbers, but there you go.

It'skay I sometimes miss a number or two here or there myself. :)

This is definitely an interesting turn of events. I think the release of the pent-up iPhone upgrade demand was accentuated by iPhone 4's early hardware issues, which lead to some loyal iPhone users sticking with the 3GS.

If I were Verizon Wireless I'd be trying to hard sell the Galaxy Nexus. I don't know how much VWZ is giving Samsung per Galaxy Nexus, but I guarantee you it's nowhere near $600... Apple's brilliant in jacking up its profit margins so high and still selling at such high rates.

Definitely a testament both to the appeal of the brand among the general public, and a rebuke on the business minds at Verizon, Sprint, and AT&T for sacrificing their own margins to try to gobble up these subscribers, fantasizing that will eventually turn into profit.

Apple is financially brilliant -- you'll get no argument from me on that.

However, how long it can keep guessing the "next big thing" smartphone-wise with Jobs gone remains to be seen. Both Windows Phone and ICS slick GUIs make the current iOS build look like it belongs on a Palm device of the 90s.

But in the short term Apple will do well as it has the brand image cornered. It's easy for us technophiles to get overly caught up in our own world and forget that. It all gets back to the P.T. Barnum quote. Savvy customers are in the minority; Apple knows how to stroke the egos of the unwashed masses like none other.


RE: In Q3, Q4, or both?
By Reclaimer77 on 1/24/2012 5:06:07 PM , Rating: 3
quote:
However, how long it can keep guessing the "next big thing" smartphone-wise with Jobs gone remains to be seen. Both Windows Phone and ICS slick GUIs make the current iOS build look like it belongs on a Palm device of the 90s.


Apple hasn't done that since 2007 when the iPhone first launched. Compare that model to this one. Where's the innovation Apple is supposed to be famous for? Same screen, same form factor, same EVERYTHING. Only the hardware improves and that's something expected in new generation phones, not a bonus.

Oh I guess I forgot Siri, yeah man, that TOTALLY transformed the way people use smartphones. Umm no.


RE: In Q3, Q4, or both?
By mevans336 on 1/24/2012 5:50:33 PM , Rating: 1
quote:
Same screen, same form factor, same EVERYTHING. Only the hardware improves and that's something expected in new generation phones, not a bonus.


This is a non-sequitur.

Quite a bit has been improved model-to-model hardware-wise, as well as to iOS.

http://www.apple.com/iphone/compare-iphones/

There's an old saying, "If it ain't broke ... don't fix it." Apple's sales numbers clearly show that so fair, it ain't broke.

Disclaimer: I own a Droid Bionic and feel like I'm holding a toy when I play with my daughter's iPhone 4S.


RE: In Q3, Q4, or both?
By ltcommanderdata on 1/24/2012 6:11:08 PM , Rating: 3
Taking the iPhone is the "same EVERYTHING" statement at face value, given the iPhone seems to remain the top or near the top selling smartphone and continues to grow and remain profitable, doesn't that indicate that Apple got the size and form factor right the first time? ie. the size and form factor of the iPhone appears to be the sweet-spot for what the average consumer wants. Should Apple arbitrarily switch to a 4.5" screen and throw in a keypad for the sake of change? There will probably come a time when major change is needed, but now is apparently not it.


RE: In Q3, Q4, or both?
By Reclaimer77 on 1/24/2012 6:20:20 PM , Rating: 2
Oh I knew it, here comes the sales argument. I'm just surprised it didn't come from Tony or Takin first.

We're talking about innovation, not profits. Sure they've gotten by the past 4 years with their typical cult-like persona and market appeal, but just sitting on your hands relying on that is NOT innovative at all.


RE: In Q3, Q4, or both?
By ltcommanderdata on 1/24/2012 7:04:00 PM , Rating: 4
I'm not a tech visionary, so I don't know what the correct definition of innovative is. If Apple increased the screen size as the vocal critics seem to push for, would that really be innovative?

I'd argue that moving from cheap TN panels to IPS for wide viewing angles and color accuracy and being able to push past 300 dpi was a major change from the original iPhone. I don't think anyone would confuse the display between the original iPhone and iPhone 4/4S.

What was probably the major innovation post-iPhone launch was the App Store. Previously, the carriers controlled development access to mobile phones so one middle-man was eliminated. Ability to self-publish, flexible pricing, and a well defined distribution channel were all major changes from how things were before. Apple taking a stand against carrier bloatware and Apple offering a consistent stream of OS updates are also noteworthy differences to how most smartphones operate.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/24/12, Rating: -1
RE: In Q3, Q4, or both?
By idiot77 on 1/25/2012 10:22:31 AM , Rating: 1
And what did the piles of PDA's look like before the iPhone? I have an HP Windows Mobile 5 that looks awfully like an iPhone did. The difference is I bought sometime in 2003/4. So.... another pointless "article" convincing people like you that Apple innovated something.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/25/2012 7:19:29 PM , Rating: 2
You'd think that someone else would have done fully touchscreen smartphones before Apple, rather than waiting for them to do it and then copying it instead.

Hell, you should have started a company and done it yourself, it's so simple! Maybe Google would have copied your execution instead and you'd make a fortune from the licensing.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/25/2012 7:28:01 PM , Rating: 2
Also, Windows Mobile 5 was trash.

Stop looking at things in such a superficial manner, execution matters.

Comparing iOS or Android or WP7 or any other mobile OS to it is ridiculous, as is bringing it into the conversation.


RE: In Q3, Q4, or both?
By BSMonitor on 1/25/2012 9:26:55 AM , Rating: 3
Innovation is making a footprint that is bigger than what people actually want?? It's making a screen so big that it requires twice the depth of the case for extra battery??

Other than that, what have they done? Make the camera grow to 10M ??

Don't be bitter that my 2 y/o iPhone4 is still thinner and gets better battery life than your POS Android phone that crashes every 5 apps you open on it.


RE: In Q3, Q4, or both?
By DeluxeTea on 1/26/2012 12:02:48 AM , Rating: 2
Funny name. You should monitor all the BS that you spew around here. My Android hasn't crashed, and has a larger screen but at the same time thinner than your iPhone 4.


RE: In Q3, Q4, or both?
By testerguy on 1/26/2012 7:01:32 AM , Rating: 2
Your Android is in the minority then.

Your Android also has a lower DPI screen and a far, far slower GPU (at least 2x slower) than the iPhone 4S.

It also has no access to Siri, no integrated wireless streaming to TV, a smaller app store (missing various key apps depending on your country) and worse battery life.

Being a brick width wise makes the 'thin' argument a bit irrelevant too.


RE: In Q3, Q4, or both?
By DeluxeTea on 1/27/2012 2:28:49 AM , Rating: 2
quote:
Your Android also has a lower DPI screen

Like that changes anything. Unlike you, I don't bring my phone up to my face to lick it.

quote:
far, far slower GPU (at least 2x slower) than the iPhone 4S.

LOL for what? Infinity Blade? If I want to game, I have my laptop.

quote:
It also has no access to Siri

Glorified voice commands.

quote:
no integrated wireless streaming to TV

In my country, you would prefer to avoid watching any TV. Besides, I have loads of videos I can put on my numerous SD cards.

quote:
a smaller app store (missing various key apps depending on your country)

I have all the apps I need. I don't need another fart app.

quote:
and worse battery life.

This point I wont argue. Apple is known to have good batteries on their devices.

quote:
Being a brick width wise makes the 'thin' argument a bit irrelevant too.

Let's see:

My phone's dimensions are 122 mm x 64 mm x 9.2 mm, has a 4" screen and weighs 109 grams. The iPhone 4S is 115.2 mm x 58.6 mm x 9.3 mm, has a 3.5" screen and weighs 140 grams. Yup, that extra 6.8mm in height and 5.4mm in width is soooooo huge it won't fit in my pants pocket.


RE: In Q3, Q4, or both?
By testerguy on 1/26/2012 7:08:44 AM , Rating: 2
quote:
We're talking about innovation, not profits. Sure they've gotten by the past 4 years with their typical cult-like persona and market appeal, but just sitting on your hands relying on that is NOT innovative at all.


Their massive growth and outselling every other Android handset combined, is not the result of any 'cult'. It's normal, rational people making logical conclusions.

iOS (The OS Android essentially copied)
App Store (Innovation & Still Biggest)
Retina Display
Longest Battery life (Look at the comparisons to Android)
Bluetooth 4 (iPhone 4S first phone to have it)
PowerVR SGX543MP - Fastest GPU in any phone, ever (and still)
Siri (Innovative in terms of integrating it into the handset and allowing it more power)
iCloud - First phone manufacturer to integrate cloud storage

So, you're accusing the best selling (despite being more expensive) and fastest phone ever made, of not being 'innovative'? Please, if it's not innovative to pack that much power into such an attractive package why hasn't anyone else done it yet, even several months after its release?


RE: In Q3, Q4, or both?
By Cheesew1z69 on 1/26/2012 11:34:44 AM , Rating: 1
quote:
The OS Android essentially copied
No, no it didn't...

The rest of your post....blah blah blah...who cares..


RE: In Q3, Q4, or both?
By tayb on 1/24/2012 6:46:10 PM , Rating: 3
I think they would be served well by offering a regular iPhone and an XL iPhone and letting the market decide which size it prefers. There are a lot of people (myself included) that prefer iOS to Android and buy it even though there isn't a larger screen offering.

And before you call me a sheep keep in mind that my current phone is a Droid X. I've owned it for 15 months. I'll give ICS a shot before I ditch Android but as of right now iOS or WP7 both seem superior to Android. That's a personal opinion folks.


RE: In Q3, Q4, or both?
By bupkus on 1/24/2012 11:43:46 PM , Rating: 2
quote:
I think they would be served well by offering a regular iPhone and an XL iPhone and letting the market decide which size it prefers.
Henry Ford: Sure, you can order any color you want just as long as it's black.


RE: In Q3, Q4, or both?
By holyc2a on 1/25/2012 10:34:12 AM , Rating: 2
One reason Apple is so profitable is they have very few ski or models and this allows them order parts in huge volumes. In fact this quarter Apple said they were able to get components at lower costs. Where as their competitors because they offer endless models have to order components at smaller volumes which raises their costs.

So apple is innovative in areas other than tech, such as supply chain.

The fact that the iPhone looks and behaves as a toy is its strength to most users. In general the power users either come from a technical background or are just good with technology and Android is probably best for them. I argue also in general (I am sure there are exceptions) that its best that the people who prefer Android not be Apple customers. These are people who want everything for free or cheap, leave these customers to Samsung and other and let them try to wring money out them. That will leave Apple the people who don't mind spending money on smart phones or tablets.


RE: In Q3, Q4, or both?
By Jeffk464 on 1/25/2012 1:39:21 PM , Rating: 2
I payed $360 for my samsung nexus, hardly free.


RE: In Q3, Q4, or both?
By x10Unit1 on 1/25/2012 5:03:37 PM , Rating: 2
Would everyone stop using the word innovate and it's various forms, please? I understand it is the favorite keyword of the past few years because of Apple but trying to say that everything they do is "innovative" proves to me that you are a victim of marketing techniques.

"So apple is innovative in areas other than tech, such as supply chain."

Holc2a, no, no they are not. You honestly think that Apple created the concept of standardized parts among various products to reduce parts cost? I just figured since we are past the second industrial revolution era that this was a common concept.

"These are people who want everything for free or cheap, leave these customers to Samsung and other and let them try to wring money out them. That will leave Apple the people who don't mind spending money on smart phones or tablets."

Wow. So you equate Android users as cheap? What about all of those people that jumped on that great iphone 3G sale a few months back? Are they cheap too? Maybe they are lower than you since you clearly have an iphone 4S, which means you are much better than them, right? Your last sentence makes my head hurt because of how ignorant and arrogant it sounds.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/25/2012 7:16:38 PM , Rating: 2
quote:
Holc2a, no, no they are not. You honestly think that Apple created the concept of standardized parts among various products to reduce parts cost? I just figured since we are past the second industrial revolution era that this was a common concept.


Yeah, "innovate" is the wrong word for many things they do. "Execution" is the word people should be using. In the case of this thread they have the tightest and best run supply chain in the tech industry. It is how they can manage the profit margins that they do against other hardware companies making high end mobile devices. They pre-order much larger number of components which drives down their wholesale prices, they're able to retool or make final adjustments very quickly by producing in China (the glass screen was an 11th hour change with the iPhone), they're able to do this on a much larger scale than anyone else (Apple was the largest purchaser of semiconductors last year), all while keeping the lowest unsold inventory out there (unsold inventory is like milk that spoils the longer it sits there).

They certainly didn't innovate. It is like anything else in their business though (R&D, marketing, product launches): tight precision execution.


RE: In Q3, Q4, or both?
By Jeffk464 on 1/25/2012 1:37:37 PM , Rating: 2
You will definitely miss the 4.3" screen.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/24/2012 6:50:37 PM , Rating: 1
quote:
But in the short term Apple will do well as it has the brand image cornered. It's easy for us technophiles to get overly caught up in our own world and forget that. It all gets back to the P.T. Barnum quote. Savvy customers are in the minority; Apple knows how to stroke the egos of the unwashed masses like none other.


Yeah, having some of the fastest hardware out there and the best developer support on any mobile platform are pretty shady ways to fool suckers into buying your product.


RE: In Q3, Q4, or both?
By GotThumbs on 1/25/2012 3:43:25 PM , Rating: 2
Whats interesting is....that the cost of the Iphone will eventually cost consumers more in higher rates.

Apple passing the buck and keeping the money. Typical.


"We don't know how to make a $500 computer that's not a piece of junk." -- Apple CEO Steve Jobs














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