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Verizon Wireless (VZ, VOD) is obligated to buy a whopping $23.5B worth of iPhones from Apple...

Verizon Wireless (VZ, VOD) is obligated to buy a whopping $23.5B worth of iPhones from Apple (AAPL) this year, about twice as many as it sold in 2012, thinks former Bernstein analyst Craig Moffett after going over SEC filings (Vodafone's 20-F appears to be the source). Moffett estimates Verizon, which he believes has fallen short of its iPhone purchase commitments each year since it began selling the phone in 2011, could end up owing Apple $12B-$14B at year's end, given sales trends. Moffett: "It isn’t clear that Apple has any incentive to blow up [its Verizon] relationship by taking a hard line ... Still, it is likely that Apple would be reluctant to simply ignore these commitments." (Sprint)
Comments (43)
  • I think APPL will take a hard line on this. Its been reported all over the internet that VZ stores push Android handsets over the iPhone and in some cases discourage people from buying an iPhone.

     

    Karma is a bitch.
    11 Jul 2013, 12:37 PM Reply Like
  • Take a hard line against the largest mobile carrier in the USA? It's possible but I doubt it. Who's got the muscle in this, I'd say the carriers.
    11 Jul 2013, 12:45 PM Reply Like
  • There are plenty of reasons to push Android handsets over iPhones (greater degree of choice in what you're getting for one). But let's say you're right, and Apple takes a hard line, temporarily gaining sales, but publicizing the waning appeal of using software to sell over-priced hardware. Is that really good for them?
    11 Jul 2013, 01:16 PM Reply Like
  • @ Eselka

     

    I like how you got the "over priced hardware" comment in your post. Nice job fanboi!

     

    If you want to talk business, great. If you have an agenda, I'm not interested.
    11 Jul 2013, 01:46 PM Reply Like
  • Karma? iPhones were 56% of Verizon's smartphone activations last quarter, and numbers (4M) were up 25% over 2012.
    12 Jul 2013, 03:30 AM Reply Like
  • Does anybody trade on this stuff? Where's the justification for such outlandish statements. If you click on the link "obligated to buy" provided by SA you get to another blog with only a minimal reference to "vast majority apple-related" and a photo of Captain Picard. What non-rhetoric.
    11 Jul 2013, 12:42 PM Reply Like
  • You must be reading a different article than I am. Here's how it starts.

     

    http://dthin.gs/176L3yr

     

    "Verizon is obligated to sell $23.5 billion worth of iPhones this year under the terms of its 2010 agreement with Apple. Should the carrier fall short of that goal, it could find itself on the hook for billions of dollars in payments to Apple. And with demand for the device more sluggish than expected this year, Verizon may well find itself in that unpleasant situation.

     

    That’s the theory put forth by former Sanford C. Bernstein & Co. analyst Craig Moffett, who recently spent some time chewing through Verizon’s 20-F filings with the SEC."
    11 Jul 2013, 01:15 PM Reply Like
  • Has anyone other than Craig Moffett commented on this? Has Verizon come out with a comment?

     

    I am reading the word "theory."
    Theory is defined as: speculation; abstract thought or contemplation
    also: analysis of a set of facts in their relation to one another

     

    Anyone else backing Mr. Moffett's theory?

     

    Thanks for any answers.
    11 Jul 2013, 03:27 PM Reply Like
  • Moffet is the only one I've seen, but that's the nature of good digging, and IIRC, he has done good work in the past. This should not be dismissed very lightly.
    11 Jul 2013, 03:56 PM Reply Like
  • Why would Verizon file a 20-F? That is for foreign companies.
    11 Jul 2013, 03:57 PM Reply Like
  • theo is eating crow?
    11 Jul 2013, 05:51 PM Reply Like
  • Eric
    Verizon does not issue a 20f but Vodafone does and as a large shareholder of vz wireless it seems that John Paczkowski got his article wrong.
    11 Jul 2013, 07:35 PM Reply Like
  • Apparently, you don't recall very well.
    11 Jul 2013, 11:25 PM Reply Like
  • Looks like it. I wasn't able to find anything about $23.5B in 2013 commitments in Verizon's latest 10-K, but I found the following in Vodafone's latest 20-F, in a section discussing Verizon Wireless.

     

    http://1.usa.gov/12vfeL4

     

    "The Partnership has several commitments primarily to purchase handsets and peripherals, equipment, software, programming and network services, and marketing activities, which will be used or sold in the ordinary course of business, from a variety of suppliers totaling $24.7 billion. Of this total amount, $23.5 billion is attributable to 2013, $0.5 billion is attributable to 2014 through 2015, $0.7 billion is attributable to 2016 through 2017 and an immaterial amount is attributable to years thereafter. These amounts do not represent the Partnership’s entire anticipated purchases in the future, but represent only those items that are the subject of contractual obligations. The Partnership’s commitments are generally determined based on the noncancelable quantities or termination amounts. Purchases against the Partnership’s commitments for 2012 totaled approximately $10.1 billion."

     

    I edited the post to note Vodafone's 20-F is the likely source.
    12 Jul 2013, 12:47 AM Reply Like
  • In the business world and the government, you can only be one of three things, or a combination of the three. You can be smart, incompetent or stupid. Where do think Verizon is on this?
    11 Jul 2013, 12:56 PM Reply Like
  • This story ran yesterday on Bloomberg and the market is not reacting. That is because there is something seriously wrong with this report.

     

    There is no way either Verizon or Apple would have signed a deal like this. It defies common sense. After reading it two times over because I was so stunned at first glance, it became immediately obvious that the facts as presented here cannot be true. The single analyst promoting this story, Craig Moffett, is just trying to call attention to himself and his new firm Moffett Research after spinning out from Sanford C. Bernstein. I'd say it was a poor start damaging his credibility.

     

    Verizon sold more iPhones in 2012 than anyone could have predicted including either Verizon or Apple. And yet per the claims in this story Verizon did not meet their agreed allocation. Come on now.
    11 Jul 2013, 01:09 PM Reply Like
  • Yes it is a bad news for the shorties.
    11 Jul 2013, 01:16 PM Reply Like
  • Japan's largest carrier, NTT DoCoMo has over 60 million customers yet is remains one of the few carriers not to offer the iPhone. DoCoMo has lost millions of customers over the last four and a half years primarily due to not having the iPhone.

     

    It is paying heavily for that obstinacy - with a net 3.2 million users jumping ship to its two domestic rivals over the last 4-1/2 years - but is determined to protect the walled garden of services it has built around its own smartphones.

     

    "We're trying to develop a lifestyle system," NTT DoCoMo CEO Kaoru Kato told Reuters in an interview this week.

     

    DoCoMo is insisting on allowing its own services and apps preloaded on to the device -- something Apple does not allow. Customers and even some higher up executives are urging DoCoMo to cave in and sign an iPhone/Apple deal but the carrier is not showing any signs of backing down.

     

    DoCoMo has in fact created many services for its customers to use, but those services such as photo sharing have been surpassed in popularity by other third party applications such as Instagram or Twitter.

     

    "Unit sales are doing quite well this year but they're still losing customers to other networks," said Hiroshi Yamashina, senior telecoms analyst at BNP Paribas. "If that's the case then they really have no choice but to go for the iPhone.""
    11 Jul 2013, 01:17 PM Reply Like
  • I thought a certain sony phone was selling well in japan?
    11 Jul 2013, 07:49 PM Reply Like
  • Thanks Warren Buffet!

     

    This is a nice little mini article on it's own!
    11 Jul 2013, 09:18 PM Reply Like
  • Maybe DoCoMo knows that people who replace the iPhone every 2 years @ $500 subsidy are pretty much money losers. Geez, you're giving away $500 and only average about $1000 out of a customer for 2 years, that's 50% of your gross revenue gone. Give someone a phone with a $200 subsidy and you make $300 on that customer (60% more -- $500 vs $800). With all the overhead of the stores, commercials, executives, sports sponsorships, $500 over 2 years from a customer could be a losing proposition.
    12 Jul 2013, 03:31 PM Reply Like
  • I wonder why Verizon isn't trying to push buyers to get iPhones but instead begging customers to get Android phones? Is it because the competitors are competing on price by giving Verizon backend incentives and Apple isn't?

     

    A contract is binding, so Apple does not need to back down, but perhaps, Apple can also give Verizon some push by matching the incentives, provided that Verizon salespeople become more neutral and don't give customers bias toward Android/WP8 phones.... Evening the playing field.
    11 Jul 2013, 01:27 PM Reply Like
  • Never been in a verizon store where I wasnt pushed hard to go to a "non" apple product. Even went once just to look at phones with my daughter and overheard the sales lady pushing some other lady away from an Iphone and she ended up buying something else. If this is what Verizon is going to do and there are many many stories of this happening then they need to be ready for the consequences. I have 5 iphones in my family now and was always encouraged to buy something else.
    11 Jul 2013, 01:35 PM Reply Like
  • But it fundamentally doesn't make sense. Why would Verizon Wireless employees push towards one product than the other, especially with apparently billions to be lost? It makes no sense, on any level.

     

    Any competent employer, pushes employees to do what is best for the bottom line.
    11 Jul 2013, 03:22 PM Reply Like
  • Money.
    11 Jul 2013, 04:14 PM Reply Like
  • Maybe just maybe because they believe to be doing the customer a favor by recommending a better product. I don't know, removable battery, sd card slot, bigger screens, higher resolution, better cameras, I guess it's hard to see the obvious.
    11 Jul 2013, 07:51 PM Reply Like
  • No, I think the employees see the obvious...if the customer is of a certain age group...or drive a BMW...or both...they pretty much know they will be buying an Apple product...just ask them.
    11 Jul 2013, 08:06 PM Reply Like
  • So if they are over 50 or under 15, they are prime candidates for the iPhone.
    12 Jul 2013, 03:24 PM Reply Like
  • Tmobile has had a great i debut of the iPhone this year....signage in front windows , choice front row wall spot inside store.....sales have been stellar with iPhone 5 only , 99 dollar intro...now letting customers receive phone upgrades quicker in contracts.....vz obviously will feel some pressure to quit pushing droid phones ...
    11 Jul 2013, 02:26 PM Reply Like
  • T-Mobile also has stopped subsidizing phones.
    11 Jul 2013, 03:23 PM Reply Like
  • Does anyone know whether Apple booked this purchase commitment as revenue?
    11 Jul 2013, 02:28 PM Reply Like
  • Apple books "sell through" (in the hand of consumer) but not "sell in" (in the hand of reseller) as revenue, so if Verizon didn't sell it, Apple does not book it as revenue.
    Apple uses this 'conservative' accounting principal, whereas other vendors uses 'sell in' as their matrix to boost their number.

     

    So, when you listen in to their quarterly conference calls (be it Apple, BBRY, or Samsung), listen to what they say about sell through and sell in, to see what is really going on.
    11 Jul 2013, 04:20 PM Reply Like
  • No. Deliveries to aapl stores are not included in revenue until sold to consumers. Sales to unaffiliated resellers are included in revenue whether sold through or not. Anything sold to resellers but not sold through to consumers is "channel inventory".
    11 Jul 2013, 11:25 PM Reply Like
  • At $12 billion and assuming $400/handset (subsidy), that is 30 million handsets. If I remember correctly, some analysts recently reduced their projection by about 20 million handsets. Why couldn't Apple could half of this away to get more favorable terms for a contract renewal/extension and potentially still make up 3/4 of the currently projected shortfall?
    11 Jul 2013, 02:28 PM Reply Like
  • Verizon is not the only carrier in this position. The hype is finally wearing away on Apple, the high-end smartphone market is saturated and not many repeat buyers for such expensive paper weights. Apple will have to feed those contracts to billy goats, because they need the carriers more than the carriers need them now.
    11 Jul 2013, 04:14 PM Reply Like
  • Yah saturation big concern..... No ..growth expansion in third world countries, no upcoming teenagers , younger and younger adoption of devices by children, pc sales tanking due to portable devices....I am not buying saturation....next...
    11 Jul 2013, 05:25 PM Reply Like
  • sounds pretty simple to resolve - VZ will just push a lot of Apple iPhones on a Very Special Sale for the next 6 to 12 months -

     

    The VZ cash registers will sound the Ka-Ching, Ka-ching melody for quite a while now.....as will the APPL stock.....
    11 Jul 2013, 05:30 PM Reply Like
  • All depends on reactions to the 5S (or 6 or whatever). A vast majority of the 4S's were sold 2 years ago (remember?). Those 2 year contracts expire this fall.
    11 Jul 2013, 07:12 PM Reply Like
  • I just read this article....

     

    http://bit.ly/12qom8w

     

    I don't know how many carriers of the iPhone 5 there are but I suspect fewer than the 327 Carriers Globally of the Galaxy S4. It seems to me all Apple needs to do is continue making great phones and continue cultivating good relationships with new carriers. Market Share increases will follow. The last thing Apple wants to do is act on this supposed Verizon shortfall in sales. Not a good way to lure other potential carriers into the fold. Pressure on verizon will scare the pants off Carriers, new and old. I predict that some sort of news or announcement confirming Apple's dismissal of any action against Verizon will be out by tomorrow's close and it will all blow over. Apple doesn't make money forcing people to buy their products..........
    11 Jul 2013, 09:52 PM Reply Like
  • If you have to force your customer to take your product, you HAVE A PROBLEM

     

    An AAPL fanboy, no doubt - but a pragmatist first
    11 Jul 2013, 10:56 PM Reply Like
  • The reality is that Apple subsidize their phones, making carriers pay somewhere around $600 per iPhone 5, Android becomes a much cheaper bet, where the higher end phones like Samsun S4 only cost them around $450 a peace, now if on each 2 years contract you are subsidizing $400 selling an iPhone compared with $200 when you sale a Galaxy S4, why the hell do you thing they are pushing the android phone????
    12 Jul 2013, 02:18 AM Reply Like
  • Foxconn is reportedly hiring workers for the next generation iPhone, rumored to be the iPhone 5S.

     

    A Chinese-language report claimed that Foxconn has begun large scale recruitment for workers to produce the next generation iPhone. The plant currently has 210,000 workers, compared to the peak of 300,000 in 2012.

     

    The iPhone 5S is rumored to have the same design as the current iPhone. Currently rumors have the device packing a fingerprint scanner, an upgraded camera, better processor, and even a slow motion camera.

     

    The publication's tipster also reports that Foxconn is working on a substantially different product with a borderless design, aluminum/carbon fiber shell and a chassis with 40% percent less weight.
    12 Jul 2013, 07:44 AM Reply Like
  • Why is it I never see Verizon adds for iPhone, but for the other ones. Apple should tighten the screws a little on Verizon.
    12 Jul 2013, 03:23 PM Reply Like
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