Verizon Hung Up on iPhone Deal

Verizon (VZ) could have had the exclusive on Apple Inc.'s (AAPL) iPhone but couldn't agree to Steve Jobs' terms to be in control of the product's distribution and customer service.

USA TODAY quotes Jim Gerace, a Verizon Wireless voice president saying, "We said no. We have nothing bad to say about the Apple iPhone. We just couldn't reach a deal that was mutually beneficial." Apple balked at letting Verizon's retail marketing partners sell the phone (Wal-Mart (WMT), Best Buy (BBY), etc.) "That would have put our own distribution partners at a disadvantage," Gerace said.

Apple's iPhone agreement with Cingular (T) is for five years. The exclusive is USA-only, leaving Apple free to market its iPhone globally, the newspaper reported.

Comments

[Julian Ivan...:]

SJ has publicly stood up and said he sees 10m iPhones sold by 2008. Its incredible for Apple to have actually pinned a firm number like this down as it is. The only reason I can think is that Apple are not just hoping to sell that many, but are supremely confident of doing so because they have guaranteed minimum orders from Cingular and possibly other, overseas, networks too. When was the last time Apple ever, at any time, publicly forecast sales numbers for any product, let alone a completely new one?

The 10m number is as good as sold as far as I'm concerned. No way would SJ have mentioned a number like this unless it was virtually a done deal.

And so, if Apple do have a revenue sharing arrangement with Cingular, and they do intend to sell 10m iPhones, then they will have to include guidance for such income in their Q-ahead numbers. If they get just $5/month per subscriber (which is about what RIMM get for their Blackberry email service from the networks), then as I've pointed out, that's 10m * $60 = $600m. That's pure profit - it will go straight into earnings - translating to about 40-50c in FY earnings in 2008/9.

I can't stress this enough: 10m iPhones is a done deal or SJ wouldn't have mentioned the figure. He never gives sales forecasts like this. Never. That's $6 billion in revenue - about enough to add $1.50 to FY08 earnings (or somewhat less if you assume a lot of those may be sold after the launch while still in FY07). On top of that, you can add another 50c from subscriber revenue sharing to FY08/09. So in total, the iPhone could be bringing in an additional $2 to FY08 earnings estimates - enough for a 65% earnings surprise for the year.

Its laughable - simply laughable - that this hasn't been more widely picked up in all the analysis. SJ would not just pluck anticipated sales out of thin air. Its a done deal, or as good as, or he wouldn't have mentioned it. Thus the earnings for FY08 are also a "done deal." You know what analysts are still estimating for FY08, having not adjusted their estimates after raising FY07 through the roof? A pathetic 15% increase in earnings over FY07

And that's if they only sell the expected 10m. What if they sell 15m? Or 20m?

Insane! I say a 60% earnings surprise for FY08 from here at a bare minimum. Possibly as high as 100%. AAPL is way undervalued here, and the absolutely certain impact of the iPhone to earnings has been way underestimated. People who say they can't see 10m iPhones sold by 2008 are misunderstanding what's happened. Apple have ALREADY sold the 10m, or as good as, or they wouldn't have been throwing around that sales figure. Apple just don't talk about sales numbers, ever, if they can avoid it. 10m iPhones. At a minimum. In the bag.

2007 Jan 30 04:54 AM

[Tom B:]

1) Did he actually SAY 10 M?

2) Rumor sites said tehy have capacity to deliver 12 M this year.

3) 10M is "doable"-- that's about 1% of the total cell phones sold per year, I think. And the price of the unit is actually not out of line with the far-inferior high-end Nokias.

2007 Jan 30 09:11 AM

[Julian Ivan...:]

Thomas, yes he actually did say 10M. That very figure. So you can bake in a minimum of 10M sold between June 2007 and 2008 sometime. I'd say more like 20m though, especially once cheaper "nano" versions are released.

2007 Jan 30 09:22 AM