Verizon And iPhone Still A Sure Thing

| About: Verizon Communications (VZ)

Verizon Communications (NYSE:VZ) provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Verizon's headquarters is in New York City, New York. The company has a market cap of $127 billion, and its stock price is around $69.

Verizon operates in two segments: wireline and wireless communications. While its wireline division has been relatively stagnant, the company's wireless division has become the largest in the United States. On September 11, the wireless division got news that will push earnings higher: the release of the Apple Inc. (NASDAQ:AAPL) iPhone 5 later this month.

That was big news because the iPhone has a huge customer base that has been anxiously waiting for a chance to purchase the iPhone 5. It is estimated that Apple could sell 5 million to 5.5 million iPhones in the first three days after its release. It has been estimated that Verizon will sell as many as 2.5 million to 3.5 million in the third quarter. "Preorders for the new device start on Friday, and it ships a week after that, on Sept. 21." The devices will sell for the same price as the iPhone 4s (see prices below). The on-contract price points remained unchanged, with previous models getting bumped down a notch:

Price With Contract



64 GB iPhone 5


32 GB iPhone 5


16 GB iPhone 5


16 GB iPhone 4S


8 GB iPhone 4

Verizon will probably take about a $5-billion hit as a result of the release of the iPhone 5. The $5 billion is the difference between the price that Verizon will sell the iPhones for, and the price that Verizon will pay Apple for the iPhones (roughly $620). The estimate is based on predictions that Verizon will sell 15 million iPhone 5s in the first year. Verizon should make up the price of subsidizing iPhone sales by locking customers into higher phone bills with 20-month contracts. For instance, the cost of a typical family plan is as follows:

Here's the breakdown for a typical Verizon's family plan:

  1. $90 for 1,400 voice minutes
  2. $10 for one additional line (The first two lines on the plan are free.)
  3. $30 for unlimited family text messaging
  4. $90 for 3 lines of data
  5. Total: $220 per month or $73 per person.

As a result of the subsidizing cost, the release of the iPhone 5 will reduce Verizon's margins in the short term, but benefit it on overall. AT&T Inc. (NYSE:T), which is Verizon's primary competitor, will also take a short-term hit, but will also benefit from the release of the iPhone 5. AT&T, which has the largest iPhone base will likely sell 3.2 million to 5.2 million iPhone 5s in the third quarter. There are other companies that will benefit from the release of the iPhone 5, like chipmaker Qualcomm (NASDAQ:QCOM) and semiconductor provider Skyworks Solutions (NASDAQ:SWKS).

Additional news from Verizon

On September 11, Verizon announced that it had "activated new 4G LTE coverage on sites in Buffalo, Clarence, Eden, Evans, Gasport, Grand Island, Hamburg, Lewiston, Lockport, Niagara Falls (including the Niagara Falls International Airport), Orchard Park, and West Falls, further expanding coverage on the high-speed wireless data network." This achievement fits into Verizon's 4G LTE build out strategy. "4G LTE Verizon Wireless customers use their 4G LTE-enabled devices to surf the Web, post status updates and photos, share music, and download files at speeds up to 10 times faster than customers on 3G networks."

On September 6, in what is good news for Verizon investors, the company announced that it declared a quarterly dividend of $0.515 per share. The announcement increased the dividend by $0.015 or 3% per share from the previous quarter. The dividend is payable on November 1 to Verizon Communications shareholders of record at the close of business on October 10, 2012.

On September 5, Verizon Wireless confirmed that it is working with Nokia Corporation (NYSE:NOK) to finalize a deal to sell Windows 8 smart phones. Verizon declined to give specific details. Verizon has made it clear that it wants to have a strong third competitor to the Apple iPhone and the Google Android devices. Verizon would like to reduce its dependency to Apple and Samsung, because of the high cost of subsidizing the sells of their smartphones.

On September 5, Verizon announced that it would sell three of Google Inc.'s Motorola Mobility smartphones. Verizon, which has been looking for smartphone providers that can challenge the iPhones dominance, will soon begin selling the Droid Razr HD, the Droid Razr Maxx HD and the Droid Razr M. The Motorola smartphones will be powered by Google's Android operating system.

On August 24, the Federal Communications Commission (FCC) announced that it had approved the Verizon Wireless proposal to purchase $3.9 billion of airwaves from big cable providers. The FCC said that Verizon will need to offer data roaming at reasonable rates as "part of its condition of approval." The additional spectrum will be used in Verizon's 4G LTE buildout and will help it to accommodate the growing use of smartphone data. This was great news for Verizon whose new pricing plans target heavy data users.


Verizon Communications has been making good progress in a number of areas. In the second quarter, the company's year-over-year earnings were up by 13%. Over the last 52 weeks, the stock price has increased by 24%. The company is making steady progress in the build-out of its 4G LTE system. Verizon will begin selling iPhones 5s starting September 21, and after absorbing a short-term hit to margins, it is set to make a lot of money with new long-term contracts. Overall, I would say that things are going well for Verizon. I like the company's future outlook and I like its 4.7% dividend yield. I think that Verizon is an excellent investment for income investors with a long-term investment horizon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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