Friday, August 29, 2014
Inquirer Daily News

Verizon loses money selling Apple's high-profit phones

"Priced for perfection... and this ain't it"?

Verizon loses money selling Apple's high-profit phones

Apple's profits ($13 billion, after taxes) were greater than Google's sales ($11 billion) last quarter. Verizon, the fastest-growing retailer of Apple phones, actually lost money (-$2 billion, on record sales of $28 billion) last quarter. Apple today matches ExxonMobil as the world's most valuable company (both worth about $416 billion on the stock markets) on expectations it will keep making more and more money.

How does Apple profit while Verizon loses? "With all those iPhones, the question is profitability," writes analyst Craig Moffett in a report to clients of Bernstein Research. The price" of retailing Apple products is "high subsidies" and low profit margins. "All those iPhones!" juice sales, but higher texting and voice transmission costs and the "endeless string of Apple upgrade cycles" keep Verizon (and AT&T) smartphone profits low. Smartphone sales "have lagged projections," and one-time upgrades are no substitute.

Selling Apple smartphones "helped further accelerate wireless growth at Verizon... but at a steep margin price," agrees Zhiping Zhao, in a report for bond researchers CreditSights Inc. The cost of updating all those Apple products without selling a lot of new ones means "returning the wireless margin to pre-iPohne levels may be challenging."

But Macquarie (USA) analyst Kevin Smithen is still pushing Verizon. Last year "we cautioned investors" that Verizon at over $40 a share was "overextended," but its Spectrum deal to buy more wireless spectrum will put Verizon "in a position to substantially raise its dividend" or buy out minority owner Vodaphone by early next year, "much earlier than we were expecting." In the high/mid-$30s, he sees Verizon as a buy.

To Bernstein's Moffett, by contrast, Verizon is "priced for perfection... and this ain't it."


Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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