Synchronoss Gives Rocky Outlook; Unlocked iPhones Take Their Toll

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Includes: AAPL, SNCR, T
by: Eric Savitz

Snychronoss Technologies (NASDAQ:SNCR) shares have dropped nearly in half in after hours trading on a disappointing outlook for 2008.

For Q1, the company posted revenue of $29.1 million, below Street expectations of $31.2 million. Non-GAAP profits of 16 cents were in line with the consensus.

In a statement, CEO Stephen Waldis says the company has “materially lowered” its growth expectations for 2008 “due in part to reduced revenues associated with the iPhone, which masks the underlying growth and momentum of the rest of our business.” The company provides AT&T (NYSE:T) with transaction management services, including the registration of new Apple (NASDAQ:AAPL) iPhone users.

As Silicon Alley Investor notes, the company on its post-earnings conference call said it is seeing lower-than-expected activations of iPhones as more of them are being unlocked and used on non-AT&T networks. Here’s what Waldis said on the call:

We cannot share the specifics due to NDA obligations, but the gap between the number of iPhones expected to be sold and the actual number that we are activating continues to be significant, and we expect this trend to continue. As a reminder, Synchronoss is not paid on the number of iPhones that are sold, but rather the number that we activate. And as a result, we are materially adjusting our expectations as it relates to revenue related to the iPhone during 2008. To put these factors into perspective, we currently expect our related transaction revenue from the iPhone to decline by approximately $30 million in 2008 compared to 2007.

The company says investments in the near-term to support the launch of service with a number of new strategic customers will have an adverse impact on gross margins. “We view 2008 as a transition year and expect to improve gross and operating margins in 2009 as new transactions ramp and we gain leverage on our investments,” CFO Lawrence Irving said in a statement.

Irving added that the company does not expect most of the impact from its new customers until 2009 and beyond.

The company also announced a $25 million buyback plan.

In after hours trading, SNCR is down $10.75, or 47%, to $12.15.