Gerard Hallaren

How Apple Sets Smartphone Industry Pricing

It is important to consider service plan pricing. For most data and voice plans the carriers all price close to each other. For the most popular voice and data bundles: Verizon is highest, AT&T is $5/month less than VZ, and Sprint is $5/month less than AT&T.

BTW if you are into saving money use a Novatel MiFi2200 on Sprint and then make and receive calls on your iPod Touch. Its what I often do .


On Oct 20 10:44 AM Mackerdude wrote:

> AT&T's high monthly rate seems to always get lost when considering
> the price of the iPhone though. And this has always confounded me.
> Why do "smart" people not factor in the rate of their monthly cell
> phone bill when considering the cost of a handset. If I'm going to
> pay $600 more for a two year contract with AT&T vs Sprint, then
> even if I pay $350 for a new Touch Pro 2 versus the old version of
> the iPhone for $99, that's still a $349 savings by going with the
> Sprint phone. Now people can argue about which handset is better,
> but its hard to argue the cost savings.
> PLEASE take the cost of your carrier's plan into consideration when
> measuring cost of a handset... This lack of consideration probably
> contributes to the fact that this country has such a problem with
> debt.

How Apple Sets Smartphone Industry Pricing

mega-dittos good buddy

Palm Has a PREcarious Channel Issue

There is an error in the above comment. Sprint ships approximately 1.0 million postpaid CDMA phones a month. 500,000 would represent 16.7%, 600,000 would be 20%.

My error and I apologize.

Palm Has a PREcarious Channel Issue

Most of our competitors and even some of our customers believe that sell through represents end user purchases. However the SEC/PCAOB mandates that companies tell the truth and clarify investor misconceptions.

We give kudos to Palm for its continuing clarity on this issue. Palm's most excellent and responsive IR team, a presentation from March of 2009 on Palm's investor web site, and language in Palms most recent 10K and 10Q explain thoroughly and plainly how the company defers both revenue and cost using the subscription accounting. If you call Palm investor relations, I am highly confident you will be disabused of old notions of sell in and sell through.

When we discussed the matter with Palm, it indicated we were asking about things that no one had yet asked. That may be kind words, but the stock price tells us that many do not believe our estimate that fewer than 375,000 Sprint customers had activated a Pre as of August 28, 2009. .

Because of adverse reaction, we thought it important to step away from our industry research and don a ready CFA suit and clarify the point.

Below is an excerpt for the 9/17 10Q relating to revenue recognition. As you read this bear in mind that Sprint was Palm's largest customer in its August quarter. The two that speak loudest to me are:

We recognize revenues from sales of mobile devices under the terms of the applicable customer agreement upon transfer of title to the customer, provided that the sales price is fixed or determinable, collection is determined to be probable and no significant obligations remain.

VSOE is based on the price determined by management having the relevant authority when the element is not yet sold separately, but is expected to be sold in the marketplace within six months of the initial determination of the price by management.

Now if you really want to nitpick, Palm's concept of economic life seems flawed especially if the device can sit on a distributors shelf for the first six monhts.

Palm also has the greatest out in the world for all of this, FASB is about to change the rules for PDA and Handset recognition. When they do I believe Palm will make a thorough restatement of these periods and the issue will be buried.

Finally, 500,000 or more activations of a single phone would set a record at Sprint which usually announces such things. Common sense also says the pre is unlikely to represent 25% of postpaid handsets shipped.

The following is taken from Palm's 10Q filed on September 17, 2009 for the period ending August 28, 2009.

"Revenue Recognition

We recognize revenues from the sales of our mobile devices. We may periodically provide services and unspecified software free of charge to customers of Palm webOS products. Therefore, as required by generally accepted accounting principles, we recognize Palm webOS smartphone product revenues on a subscription basis. We recognize revenues and related direct product cost of revenues for our Palm webOS products on a straight-line basis over their currently estimated economic lives of 24 months. If the actual economic lives of our Palm webOS products are different than these estimates, we revise the economic lives we are using to recognize revenues and related direct product cost of revenues, which may result in a lack of comparability between products and/or periods. Certain other related period cost of revenues will be expensed as incurred. If we offer specified upgrade rights to our customers in connection with Palm webOS products for future delivery, we will defer commencement of revenue recognition until the future obligation is fulfilled, the right to the specified upgrade expires or vendor specific objective evidence, or VSOE, is established.

Revenues are recognized when earned in accordance with applicable accounting standards and guidance. We recognize revenues from sales of mobile devices under the terms of the applicable customer agreement upon transfer of title to the customer, provided that the sales price is fixed or determinable, collection is determined to be probable and no significant obligations remain. Sales to our customers are subject to agreements allowing for limited rights of return, price protection and rebates. Accordingly, revenues are reduced for our estimates of liability related to these rights. For Palm webOS products, returns are included in subscription accounting revenue in the period in which the return occurs. For other Palm products, the estimate for returns is recorded at the time the related sale is recognized and is adjusted periodically based on historical rates of returns and other related factors. The reserves for price protection and rebates are recorded at the time these programs are offered . Price protection is estimated based on specific programs, expected usage and historical experience. Rebates are estimated based on specific programs, actual wireless carrier purchase volumes and the expected percentage of customers that will redeem their rebates, which is estimated based on historical experience. Rebate estimates are refined over the program period as actual results are experienced. We have accrued rebate obligations of $51.2 million as of August 31, 2009 which were included in other accrued liabilities. Actual claims for returns, price protection and rebates may vary over time and could differ from our estimates.

Revenues from software arrangements with end users of our devices are recognized upon delivery of the software, provided that collection is determined to be probable and no significant obligations remain. For arrangements with multiple elements, we allocate revenues to each element using the residual method. When all of the undelivered elements are software-related, this allocation is based on VSOE of fair value of the undelivered items. VSOE is based on the price determined by management having the relevant authority when the element is not yet sold separately, but is expected to be sold in the marketplace within six months of the initial determination of the price by management. When the undelivered elements include non-software related items, this allocation is based on objective and reliable evidence of fair value. We defer the portion of the sale price equal to the fair value of the undelivered elements until they are delivered."

Palm F1Q10 (Qtr End 8/29/09) Earnings Call Transcript

I am sure you will all be shocked to learn that as of Tuesday morning, Palm has not responded to my call to it VP of IR Teri Klein.

Without a doubt the customer and device mix is material to understanding Palm's future. I am amazed our SEC has not asked for that disclosure. It is far from a trade secret within the industry.

Apple iPhone 3GS vs. Palm Pre: Are Consumers Satisfied?

At the end of july, Palm had shipped about 325 thousand Pres and Apple had shipped about 2.25 million units. This is a ratio of about 6.9 to 1. The survey's ratio was 5.2 to 1.

IMHO: there should have been fewer Pres in the sample.

No Pixi Dust for Palm?

You've raised very good points. Might also consider the touchstone attach rate. It is very cool and $70 with a $200 purchase is not too hard to do. How will $70 look with a $100 purchase. The Touchstone is likely Palm's most profitable product.

How Many iPhones Will Apple Sell in China?

China Unicom more than 100MM 2G subs and is growing. Howsomeever, the iPhone is for its new set to begin commercial rollout in September 3G network. Yes, it will work with both networks. Relatively few phones are subsidized by carriers. My best guess is 3 MM iPhones by YE. Still a very good number but not 5.0 MM.

Roger McNamee - Judgment Day on Pre vs. iPhone

300K Palm Pres in June no way!

That would be more than half of the postpaid CDMA phones Sprint shipped in the last three weeks of June. (Sprint sold about 753 thousand postpaid CDMA phones per month last quarter)

We think Sprint sold more like 175K sold through at the end of June and another 50K for the first half of July.

Notice that Sprint did not announce that the Pre set any shipment records. Figure they did about 150K Samsung Instincts in the first week when it launched last year!

BTW: Sprint's churn was likely higher in June than in April or May.

There is a good chance WebOS can save Palm and keep it independent. Will there be disappointed investors once these number become obvious? Almost certainly.

gerard@townhallresearc...

Palm Pre Sales Tapering Off; Roger McNamee Eating Crow on iPhone Prediction

Tomorrow Palm and O2 are likely to announce O2's UK exclusive for the Pre. O2 currently has 8.7 post paid subscribers of those, a little more than 1.0 million use the iPhone. More than 1.0 million are on Nokia's aged N95. To me that brings the market to about 6.5 million or 270K units per month the same as Bell Mobility. Not likely to bring millions of units to Palm anytime soon.

I've been wrong on this stock since shortly after the February Quarter EPS report. The Pre is a decent phone, good, not great as a former Treo and current Window's phone user it seemed a little quirky and missing some key features. BTW it is noticeably slower then my year old HTC Touch Diamond.

There is enough to the Pre that the company should be able to obtain equity financing. But at what price? Assume it was profitable then it would have 216MM total potential shares issued. $3.5Bn market cap is a lot for a singe product company in a very competitive market.

The Solution to Americans' 'All-You-Can-Eat' Appetite for Cellphone Data

You raise a number of important issues here. BTW we expect both 4G technologies to be more than 2-4X more efficient than 3G. Not at first but not too far off.

I like your idea aobut different pricing over the course of a day or week. Cellcos have been doing that for years with voice. Why not data?

Another solution is to make mobile data pricing progressive. For example, pay a flat fee for a fixed amount of minutes or GB, the cost of going over should not be punative. Incremental use should cost less not more.

Sprint Q1: Still Drops Customers, But Offsets with Kindle

Lets be clear.

Boost prepaids are not on the wholsale line. They are reported as prepaid subscribers. Virgin Mobile, Kindle and other wholesalers are on the wholesale line.

Boost has a text system problem that Sprint says should be fixed by May 7 (coincidentially the original plan for shipping the Pre).

The kindle accounted for about 200,000 wholesale subs at the end of last year.

Palm's Pre: Likely to Break

ROTFL

On May 03 12:54 PM Aryamehr wrote:

> Please remember that the Pre has raised the bar so much that the
> competition is reeling with chaos. They just don't know how to counter
> the WebOS and what the Pre will do to their bottom line. How will
> Verizon compete with Sprint when the Pre is head and shoulders superior
> to their best Smart phone, that costs at least $50 more per month
> for their 'simply everything plan?' How does ATT continue to steal
> Smart phone customers from Sprint when the Pre is launched? Isn't
> it patently obvious that if Sprint has a better Smart phone at a
> monthly cost of $50 less than comparable plans from ATT & VZ,
> that the bottom line for both these companies will be negatively
> effected. This is why Palm and Sprint have witnessed much maligned
> pervasive spin against their companies. Let's just look at why Palm
> picked Sprint. First Sprint is the only company with 4G capabilities
> and by the end of this year they will have 4G available in ten metro
> areas from Las Vegas and Portland on the West Coast to New York on
> the East Coast. At this moment neither ATT nor VZ will have anything
> to offer other than hyperbole or spin about their future 4G. On another
> note Sprint has the most reliable 3G network in the nation, according
> to indipendent surveys. Now couple this with the savings of $50 month
> and what you will have is the best Smart phone at a substantial monthly
> discount from what ATT and VZ offer. In summary, the Best smart phone,
> on the fastest and most reliable network at a substantially lower
> monthly cost. Is this not compelling enough? Now do you see why the
> spin masters are out in droves? The fact is both Palm and Sprint
> are going to do extremely well from the day the Pre is launched,
> the only question is logistics and execution.

Palm's Pre: Likely to Break

Don't know what YMMV stands for. We do like Sprint and believe the company is in an orderly liquidation. JD Powers thinks Sprint has superior service. It is just that the company has lost lots of customers and has excess capacity. With each incremental dollar flowing to the bottom line, cutting price is logical.


On May 03 10:06 AM User 406375 wrote:

> I'm not quite sure I understand the logic behind "With its customer
> losses [Sprint] has more pricing flexibility than other networks".
> Sprint's Simply Everything plan is less expensive than that offered
> by any of the other carriers (and arguably more reliable, though
> YMMV). Doesn't $S have an obligation to its shareholders as well
> as its customers? Both would suffer, I suspect.

Palm's Pre: Likely to Break

Aside from the iPhone and MAYBE the Storm we agree, smartphones do look much alike. Besides they are all (becoming) smartphones.


On May 03 06:08 AM GF wrote:

> I am sure you know nothing about a smartphone.It looks like all the
> phone are the same. LOL...