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Troy Jensen is Chief Executive Officer and Managing Director of nxVenture Capital, a rapidly-growing and innovative Private Equity Management Firm based in New York City. As well as overseeing the firm’s global operations, he is the Managing Director and head of the Investment Committee. Jensen... More
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  • What Verizon News On Missing IPhone Sales Obligations Means To Apple Shareholders 0 comments
    Jul 16, 2013 10:48 AM | about stocks: VZ, AAPL

    Today brought yes another headline involving Apple (NASDAQ: AAPL) that could be considered perhaps negative for Apple (although by the looks of that initial headline a LOT more negative for Verizon!) that went scrolling past one of my screens at my desk around 12:30PM EST as I was eating lunch - this one was a Bloomberg Headline, "Verizon Seen Owing Apple Up To US$14 Billion for iPhones" that made me pause momentarily, and then decide to pull my iPhone out and make a note to check some this particular news story again around 5PM EST to see how the financial news curators as well as the more traditional news sites (CNBC.com; Bloomberg.com, etc.) were treating the story. I was also curious if there would be any Social Media reaction to the story, so I called my company's "Social Media Guru" and gave her some instructions on some detailed reporting I wanted to see both from now through 5PM EST, and then some overnight reports.

    I wanted to see if this would be another overblown, negative Apple story that frankly was not much of a story short-term for Apple at all...and even long-term, I am not convinced this will have any real material impact on Apple's negotiating position with the Wireless Carriers and their ability to secure these contractual guarantees (which thus far their competitive-set smartphone manufacturers have not been able to secure) going forward - more on that later in the article.

    I didn't even bother to see how the market was going to react to the story via real-time AAPL share price movement - in my opinion, this news was already priced in months ago and was of no surprise I would think to anyone but perhaps Verizon (NYSE: VZ) shareholders, of which I am not one of. Turned out I was correct on that point - AAPL shares closed after a very uneventful day of trading (average volume, narrow trading range) at US$427.44, up .22% for the day - in the world of AAPL, the most widely-held stock in the world with the most measurable daily media coverage of any individual company's stock in the world, this was a VERY quiet day.

    I posted my findings on my Seeking Alpha Blog tonight; quite frankly, there wasn't much to this story at all. Indeed, the biggest Apple iPhone news story (both mainstream and financial news outlets) by a large percentage trending today in both Digital News Media coverage (mainstream and financial news), as well as throughout the major Social Media Platforms. was a story that has been out for several days now regarding a Chinese Flight Attendant who was killed last Thursday by electrocution while answering her iPhone 5 while it was charging, which Apple is investigating and (of course) the Chinese state-controlled news sources were all condemning Apple immediately.

    So What Does The Verizon Story Mean to Apple Shareholders?

    In the short-term, absolutely nothing. The fact that iPhone 5 sales have disappointed and are slowing on a month-over-month basis right now is not exactly breaking news; nor is the resulting downward pressure on gross margins, both of which Apple acknowledged in their last earnings call, and all facts that analysts and investors like myself and others have already factored into our trading models for Calendar Year 2013 (CY 2013) as well as Apple's Fiscal Year 2013 (FY 2013), which ends September 30, 2013.

    In the long-term, I believe this indeed will have very little effect on Apple's ability to extract these contractual sales obligations out of the Wireless Carriers when iPhone 6 is ready to be released. Sure, we will likely see more conservative guarantees from the Wireless Carriers (especially Verizon!) as the Smartphone marketplace environment has dramatically changed, with lower-cost and higher-quality Android products making the presence felt both with the Wireless Carriers and Apple. But Apple's CY 2013 Q4 New Product Release s are going to surprise in October/November, and will set up a 2014 negotiating environment that, I will wager here and now, will allow it even more leverage when it comes to "up-front negotiated sales guarantees" across the iPhone spectrum.

    Why? Because Apple has a more than a single iPhone 5S model with upgraded hardware and performance and the official release of iOS 7 (which iOS 7 alone has been completely overlooked - there is a lot more to the iOS 7 story and upcoming, substantial upgrades to iOS 7 that are going to be introducing incredibly disruptive innovation to the Smartphone segment). The iOS 7 shipping coinciding with the release of iPhone 5S in October essentially a MVP (Minimally Viable Product) release in order to meet the very intense internal goals set by Apple of meeting the October Release deadline.

    Apple's November Surprise - An Entry Level iPhone?

    Internal sources have confirmed that Apple is making a similar strategic move they have in the past - cannibalizing their own product lines before their competitive-set does instead - and keeps that revenue from the market-share pie for themselves. Apple would rather take the higher, rapid-growth gross revenue that a true entry-level iPhone would bring and absorb the gross-margins hit they are sure to take as best they can by utilizing last-generation technologies, a cheaper plastic exterior (albeit sources tell us with a far superior fit-and finish than they were expecting) and multiple-colors to select from, in a nod to the original iMac colors made available.

    This might not delight investors who have fallen in love with the iPhone and its 50% gross margins; my response to that POV (point-of-view) is welcome to the Technology Industry. More specifically, welcome to the highly-disruptive Mobile Hardware and Digital Media Technology segments, where the Velocity of Innovation is in an accelerative, rapid-growth stage, and consequently top-line growth in gross revenue becomes the literal "Chess-Move" - a strategic move surprising their competitive-set by cannibalizing their own premium Smartphone marketshare in order to continue to expand overall marketshare dominance by forcing their Samsung, HTC and other Android competitors to now deal with what will be in 2014 a widely-expanded iPhone array of models, from an entry-level iPhone to several solid middle-market iPhone models up to a rumored uber-premium iPhone 6XS model that will simply amaze.

    In the short-term CY 2013 Q4 segment, to maintain and grow marketshare in the Mobile Smartphone segment, a low-cost, low barrier-to-entry, yet still very much a high-quality Apple product is the perfect solution - and with the right Mobile Carrier partners and the right innovative financing model in place, November 2013 is looking more and more likely to bring us yet another Apple Innovation nobody saw coming.

    Stay tuned this week to my articles and posts here on Seeking Alpha, with much more to come in both my Contributing Author Articles, as well as in my Seeking Alpha Instablog Postings on my "Apple Innovation Week of Leaks Series"...including:

    • New iPhone Entry-Level Models and "Innovation in Financing" from an Apple/Wireless Carrier partnership program...
    • Apple TV Major CY 2014 Q1 Releases of Hardware and Software Solutions - Revolutions Can and Often Do Start Both Big and Small...
    • iTunes Radio and Twitter #Music - Sounds Like Music to Our Ears
    • Apple and Twitter Integration Gets Far Deeper Than Previously Thought - the iOS 7.1.1 "Twitter Update"...
    • Mystery Talks Between Apple and Twitter Heat Up Again in Q1 CY 2014 - FINALLY the M&A Move Everyone Has Been Waiting For in Digital Media?
    • iWatch: As Apple Throws Massive New Staffing Towards The iWatch Program - This May Sit 2014 Until Perfected...
    • AAPL: 2013 Second-Half Share Price Performance Predictive Analysis and Investment Strategy
    • AAPL: 2014 Annual Calendar Year Performance Predictive Analysis and Investment Strategy

    That is ALL between now and this Sunday, July 21st, here on Seeking Alpha...

    By Troy Jensen

    For Troy Jensen's LinkedIn Bio, visit www.LinkedIn.com/in/troyjensen

    Disclosure: I am long AAPL. 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.

    Additional disclosure: Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

    Themes: market-outlook Stocks: VZ, AAPL
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