Verizon Could Face Up to $14 Billion in Unsold iPhone Purchase Commitments for 2013

[EbookReader]

If Verizon buy a product for $599 (iphone) and sell for $199, it loses $400 on subsidy.
If Verizon buy a product for $499 (high end Android) and sell for $199, it loses $300 on subsidy.


Isn't it any wonder that Verizon would push the phone that minimize its subsidy?



p.s. Verizon just announced that they will drop phone subsidy starting September 1st 2013.

 

[alexgowers]

I'm amazed that these carriers are so dumb, you have to be in at ground floor level for everything, they slept on the iphone and now they can't sell that, well that's a bloody surprise!

Surely they are crapping themselves right now, verizion should commit long term to the iphone and try and save a huge bill.

Ironically it's kind of like the contracts phone companies sell consumers?

 

[mxgenius]

prediction

Verizon will have to pay a hefty fine for breach of contract, then announce a rate hike in service plans to pass on the cost to their customers. Why? because they don't know how to make economic decisions that make sense.

 

[Wicked1]

Well no carrier will agree to a similar purchase order in the future, that's for sure.

It might give the carriers some more clout with Apple to make better arrangements with their deals now, as non of them are going to want to sit on inventory they can not sell, I wonder how Sprint will handle it, from what I read their deal could be a deathblow to them in the 3-4 year period.

Also curious what AT&T and T-Mobile's deals were. We all know with Samsung starting to pick up pace, it will force Apple to negotiate better with the carriers, IMO who knows though what will happen. I do not think the 5S will see much better sales that the 5 did but we will see.

 

[gkarris]

I recently got a text from Verizon offering the iPhone 5 for 99.99 plus a $35 upgrade fee along with unlimited talk, text and 2 GB of data for $60 per month. Evidently they are trying to push the iPhone now.

Thank God for T-Mobile!

Plus, their lying salespeople has backfired...

 

[ftaok]

This is something APPLE must loathe, but really can do very little about. $23.5 Billion at the average quoted price of 613/unit translates to over 38 million new iPhones a year, or an average of 9.5 million per quarter. Even for VERIZON, the largest US carrier, that is an aggressive target. Of course, VERIZON knew this when they entered into that contract. With this forecasted shortfall, there are no winners here. If APPLE insists on holding VER to that contract, VER might balk at, and refuse subsequent agreements like these. If, on the other hand APPLE let's VER off the hook, they are opening a can of worms, as far as dealing with the other carriers is concerned.

This is exactly why this rumor/analyst note is complete BS. I haven't run the numbers, but I'll trust your math. Verizon couldn't have expected to sell this many iPhones, so why would they have committed to that many?

The numbers don't seem to add up. I call BS on the analyst report, or at least they're trying to mislead people with their interpretation of the numbers.

----------

It might give the carriers some more clout with Apple to make better arrangements with their deals now, as non of them are going to want to sit on inventory they can not sell, I wonder how Sprint will handle it, from what I read their deal could be a deathblow to them in the 3-4 year period.

Well, Sprint may die in the next 3-4 years, but it won't be because of their deal with Apple. Sprint is actually way ahead on their 4 year commitment with Apple. Their deal with Apple was for $15Billion over 4 years. That came out to something like 25 million iPhones over that period. As of last quarter, they were well ahead of what they need to be to meet these numbers.

I don't have my spreadsheet on this computer, but I'll update this post if I remember to.

ft

----------

If Verizon buy a product for $599 (iphone) and sell for $199, it loses $400 on subsidy.
If Verizon buy a product for $499 (high end Android) and sell for $199, it loses $300 on subsidy.

How much does Verizon lose if they buy a higher-end Android for $699 and sell it for $199?

Isn't it any wonder that Verizon would push the phone that minimize its subsidy?

There's more to this than just the subsidy. It's been noted that iPhone are typically on higher priced cell/data plans than users of other platforms. What's more valuable for Verizon ... a user on a $50/5GB plan or an Android user on the $15/300MB plan?

p.s. Verizon just announced that they will drop phone subsidy starting September 1st 2013.

REally? I hadn't seen this.

 

[Michael Scrip]

If Verizon buy a product for $599 (iphone) and sell for $199, it loses $400 on subsidy.
If Verizon buy a product for $499 (high end Android) and sell for $199, it loses $300 on subsidy.

Isn't it any wonder that Verizon would push the phone that minimize its subsidy?

p.s. Verizon just announced that they will drop phone subsidy starting September 1st 2013.

Yeah it makes sense that Verizon would want to eek out as much profit as they can. And by your calculations Verizon would save $100 by selling someone an Android phone.

But... the iPhone 5 and the Galaxy S4 are exactly the same price... $649 off-contract and $199 on-contract. So it's really a wash.

Oh there might be spiffs for the individual salesman if they sell a certain Android phone. But Verizon itself will still collect their monthly fees.

Verizon makes all its money on the monthly service... not hardware. It's that $2400 they will get from you over the next 2 years that they're excited about.

So yeah... Verizon might lose less money on the subsidy from an Android phone... but they still make butloads of money on the service.

 

[rwagoner]

Upgrade Pause

Maybe Verizon would't be stuck if it allowed people like me with an iPhone 4, who would love to upgrade but don't want to lose unlimited data. It is Verizon's own stupid policies that keep me from upgrading, and possibly changing carriers. That and the lousy service near me (no 3G on a MAJOR highway nearby and no way to use the phone inside my house) that they have no intention of fixing.

 

[\-V-/]

Well, he said "if someone TRULY WANTED an iPhone". Most people don't go into a shop and TRULY WANT something. I go to the grocery store wanting to buy strawberries, but if cherries are cheap and look nice, I'll buy cherries instead, because I don't TRULY WANT strawberries.

But it seems that Verizon will have to convince their sales people to push in the opposite direction, or it might become very expensive.

Yeah, you're probably right.

----------

You said they push other phones for incentives and tgat is flat out WRONG

he just texted me and said a gs4 sale pays exactly to tge penny of what an iphone 5 sale does

Um... can you not read?

 

[Asia8]

Apple cripples large telecoms with killer contracts, buys them out when they're down and starts iCall, iNet, iOutOfNames

 

[iGrip]

let's hope the iphone 5s will be able to reduce their huge loss.

All indications are that the 5s will put Apple even further behind the curve with a tiny screen and nothing compelling to make up for it.

 

[gnasher729]

If Verizon buy a product for $599 (iphone) and sell for $199, it loses $400 on subsidy.
If Verizon buy a product for $499 (high end Android) and sell for $199, it loses $300 on subsidy.

They don't actually lose anything. The money is added to the monthly payments. That's why you either can't cancel a contract early, or have to pay a penalty if you cancel early, so they get the $400 or $300 back.

And if Verizon sells a $599 iPhone with a $199 price tag, and a $499 Android phone also with a $199 price tag, with the rest of the contract the same, then I'd say the Android customer gets ripped off. Are Android customer less intelligent?

----------

Who exactly is providing these spiffs? If salesperson bonuses are coming directly from the manufacturers and Apple refuses to play, is Verizon to blame?

Assuming the report is correct, then Verizon signed a contract with Apple. The company is run by adults who surely must have read and understood the contract. And the salesperson is employed by Verizon. If Verizon signs a contract that makes it necessary to push iPhone sales, and the salesperson employed by Verizon doesn't do that with possibly awful consequences for Verizon, then Verizon management is straight to blame.

----------

That is the problem, Apple is inflating it's numbers by demanding carriers buy back all unsold stock.

That's nonsense. Apple reports and can legally report a phone as "sold" if the carrier buys it, has received it, has no right to return it to Apple, and has either paid for it, or is legally required to pay and reasonably likely capable of paying. The number that Verizon is contractually required to buy doesn't matter; Apple can't report them as sold.

And what do you mean by "carriers buy back all unsold stock"? There's no "buying back". If there is a phone in a Verizon store, they bought it from Apple and they own it.

 

[Technarchy]

This is absolutely not good for Apple. Such a significant shortfall only gives the carriers more leverage to push back Apple and its minimum purchase commitments. Frankly, Apple only has itself to blame since they've allowed the competition to catch up (if not surpass in certain areas).

Good luck with that theory. I would love to see any carrier "push back" and make Apple pull their products.

That's a death wish for any carrier which is why Verizon, Sprint and Tmobile got in line to begin with.

 

[skratch77]

I just realized something and it makes total sense why sales people would not push apple phones. It has nothing to do with verizon but just the workers knowing that the iphobe 4 and 4s
are 3g phones and verizons 3g network is horrible and androids had 4g for over a year before apple had a 4g phone on Verizon

for anybody that has verizon and used its 3g speeds you would steer a potential iphone buyer to an android 4g phone also

 

[Fairthrope]

All indications are that the 5s will put Apple even further behind the curve with a tiny screen and nothing compelling to make up for it.

So faster hardware and new features aren't enough to compensate for an old, bored look?

----------

Good luck with that theory. I would love to see any carrier "push back" and make Apple pull their products.

That's a death wish for any carrier which is why Verizon, Sprint and Tmobile got in line to begin with.

US carriers push back is one thing. China Telecom use this story as a truncheon to beat more concession out of Apple is another.

 

[Lennholm]

Regardless of how people here want to twist this, this is very bad news for Apple. The only reason the carriers went along with this, committing to these many devices with a low profit margin, is that they thought they absolutely needed iPhone in their product line-up and that it would sell itself. They want to make money so of course they're going to focus on the devices that makes them money.
As it turns out, the iPhone doesn't sell itself and they would hence need to make a considerable effort to sell it which means taking focus from the products they make money from. The iPhone isn't as indispensable as they thought and there's no way they're going to agree to the same deal again.
Bottom line, Apple will have to loosen their demands if they want the carriers to pick up the iPhone in the future.

Good luck with that theory. I would love to see any carrier "push back" and make Apple pull their products.

That's a death wish for any carrier which is why Verizon, Sprint and Tmobile got in line to begin with.

Yes, at the time they believed it would be a "death wish" but it has turned out that the iPhone isn't as indispensable as they believed so it's not really a "death wish" at all to refuse Apple's demands and they wont agree to these terms again.

 

[iGrip]

So faster hardware and new features aren't enough to compensate for an old, bored look?

I'm not sure how you arrived at that summary based upon what I said, but as long as you ask, the answer is no.

A speed bump in today's market is not a compelling reason to choose or to update a phone. Every top smartphone has some sort of confusingly-named multi-core something, and they all are plenty fast. This isn't the computer market of 1997 where you had to upgrade to the latest chip in order to run the latest software. Speed does not seem to be much of a differentiator in the smartphone market.

I think that in today's market, you need something tangible to differentiate your smartphone from that of your competitors. A better screen than anybody else, like the S4 had when it first came out? A better camera than anybody else, like the new Lumina?

In order to best the S4, the One and the new Lumina, Apple needs something that people will immediately appreciate as a differentiator. Either hardware or software would do it.

If there was something new and great about iOS 7, that might do it. But so far, I see nothing much.

If there were something new and great about the hardware of the new iPhone, that might do it. But so far, I see nothing much.


So no, I don't think that a somewhat better chip will do much to convince people that giving up a great screen is worth it. And no, I don't think that there anything much about the new iOS that will convince people that the small screen is a decent tradeoff.

I think that Apple had dam well better get the iPhone 6 here quickly, given that Apple is mostly a telelphone company at this point.

 

[Toltepeceno]

You have people specifically wanting an iphone walking in and then being turned towards other phones not because they are better but simply because verizon makes more money off of them. Notice how we're just talking about verizon here. The other carriers don't seem to be having these issues.

I've worked in sales for different products, all my income relying on this. It happened in the US when the industry I was working in crashed so I tell you from experience it does not work that way. You cannot just sell the customer what you want them to have in the vast majority of cases. If that were true all sales people would be rich, by far most are far from rich. Most are trying to survive.

 

[Azathoth]

The modem in the iphone is made by qualcomm and that modem supports all the bands.you can go into Verizon and unlock your iphone5 to work as a world phone on any gsm network.

the funny part is verizon was the only carrier to sell unlocked iphone 5s and people were selling them like mad for crazy inflated prices over seas on ebay

I didn't know that (the iPhone 4 had a different IC and antennas according to iFixit teardown)

It's still a different SKU though, for the '5:
http://support.apple.com/kb/ht3939

With some differences probably in antennas and regulatory approval (not to mention production planning) - therefore that might still be the reason for requiring a high purchase commitment from Verizon.

 

[skratch77]

I didn't know that (the iPhone 4 had a different IC and antennas according to iFixit teardown)

It's still a different SKU though, for the '5:
http://support.apple.com/kb/ht3939

With some differences probably in antennas and regulatory approval (not to mention production planning) - therefore that might still be the reason for requiring a high purchase commitment from Verizon.

Apple tried doing the same kind of contract with the biggest carrier in Russia and they laughed at apple and dumped the iPhone.

Just do a search for Russia not selling the iPhone any more.

The CEO said it would put the company in negative margins

You people are crapping on Verizon employees for not pushing the iPhone but in my eyes they were HELPING the consumer.

How can anyway say them making a person sign a 2 year contract with the iPhone 4s and get stuck with 2 years of slow 3g( by far the worst 3g on earth)when they could easily buy a gs3 that blew the doors off of the 4s and had lighting fast LTE speeds over any apple product in the Verizon line up.

Seriously some of you really think apples **** don't stink and will go so far out of reality to justify Verizon employees pushing a way better deal for the consumer signing another 2 year contract.

I feel bad for the people that used an upgrade and got a 4s right before the 5 came out because some apple lover sales guy pushed them to get an iPhone over any dozen of 4g phones that were available on the android platform

 

[Technarchy]

Yes, at the time they believed it would be a "death wish" but it has turned out that the iPhone isn't as indispensable as they believed so it's not really a "death wish" at all to refuse Apple's demands and they wont agree to these terms again.

Verizon should start thinking like you, because Sprint and T-Mobile need a bailout, and AT&T would laugh all the way to the bank.

Even if a carrier chooses to not directly sell iPhones, this will do nothing but drive traffic to the Apple store or other retailers like Best Buy, which is still revenue lost for any carrier to that chooses not to play ball.

 

[Vanilla35]

You are incorrect.

The SG3, SG4 and many other Android Phones have the ability to use voice and data at the same time.

It's a limitation of the iPhone 5 and LTE. Blame Apple, Not Verizon.

http://www.pcmag.com/article2/0,2817,2409716,00.asp

You are incorrect though.

"3G CDMA networks (known as "EV-DO" or "Evolution Data Optimized") also, generally, can't make voice calls and transmit data at the same time." - Section

(3G CDMA networks (known as "EV-DO" or "Evolution Data Optimized") also, generally, can't make voice calls and transmit data at the same time. Once more, that's an available option (known as "SV-DO" for "Simultaneous Voice and Data Optimization"), but one that U.S. carriers haven't adopted for their networks and phones.

On the other hand, all 3G GSM networks have simultaneous voice and data, because it's a required part of the spec.)


http://www.pcmag.com/article2/0,2817,2407896,00.asp


Additionally,

"Additionally, GSM (and UMTS) phones can send and receive data packets while making a call, which most CDMA networks still don't support."

http://gizmodo.com/5637136/giz-explains-gsm-vs-cdma


The only reason phones like GS3 and GS4 can use data and phone at the same time is because Samsung allowed a sim slot in those phones which verizon could utilize. Most other verizon phones don't have that. GSM already requires sims in all their phones, as everyone already knows.

 

[kdarling]

The only reason phones like GS3 and GS4 can use data and phone at the same time is because Samsung allowed a sim slot in those phones which verizon could utilize. Most other verizon phones don't have that. GSM already requires sims in all their phones, as everyone already knows.

The reason that some other Verizon phones can use data and voice (SVDO or SVLTE) at the same time is because they have the RF sections and antennas to use two CDMA radios at once, or one CDMA and one LTE.

The iPhone does not.

http://www.anandtech.com/show/6295/...ous-voice-and-lte-or-evdo-svlte-svdo-support-

http://www.pcmag.com/article2/0,2817,2409716,00.asp

 

[SusanK]

iPhone activations up 44%

An item on Fidelity's site indicates Verizon's iPhone activations are up 44% over second quarter 2012.

 

[TallManNY]

Regardless of how people here want to twist this, this is very bad news for Apple. The only reason the carriers went along with this, committing to these many devices with a low profit margin, is that they thought they absolutely needed iPhone in their product line-up and that it would sell itself. They want to make money so of course they're going to focus on the devices that makes them money.
As it turns out, the iPhone doesn't sell itself and they would hence need to make a considerable effort to sell it which means taking focus from the products they make money from. The iPhone isn't as indispensable as they thought and there's no way they're going to agree to the same deal again.
Bottom line, Apple will have to loosen their demands if they want the carriers to pick up the iPhone in the future.



Yes, at the time they believed it would be a "death wish" but it has turned out that the iPhone isn't as indispensable as they believed so it's not really a "death wish" at all to refuse Apple's demands and they wont agree to these terms again.

Hmmm, carriers in the US really struggled without the iPhone. Let's see how this works out for them.