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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 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.


"Intel is investing heavily (think gazillions of dollars and bazillions of engineering man hours) in resources to create an Intel host controllers spec in order to speed time to market of the USB 3.0 technology." -- Intel blogger Nick Knupffer














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