Wednesday, January 04, 2012, 08:59 pm PT (11:59 pm ET)
Apple's iPhone so popular Verizon taking short-term hitThe success of Apple's iPhone on the Verizon Wireless network has resulted in a short-term impact of as much as 6 percent to the carrier's gross margins as it waits to recoup its subsidies for the best-selling handset.
Verizon revealed on Wednesday it had sold 4.2 million iPhones in the last quarter of 2011, more than double the amount sold in the previous quarter. However, the notable growth came with a price, as iPhone subsidies cut into the company's margins.
Chief Financial Officer Francis Shammo indicated during an investor conference that Apple's handset would eat into Verizon's gross margins by as much as 500 to 600 basis points (5 to 6 percent), as noted by Bloomberg. The wireless operator's margins stood at 47.8 percent in the third quarter of 2011 and have fallen "to a range of 42 percent to 43 percent" in the fourth quarter, Reuters reported Shammo as saying.
Despite the decreased margins, Shammo said Verizon was pleased with smartphone uptake on its network.
"This gives us a great momentum going into 2012," he said, adding that the company had gotten "extremely close" to its goal of 11 million iPhone sales in 2011. In fact, supply was a limiting factor for Verizon, as it finished the year with 120,000 backlogged iPhone orders.
Shares of Verizon dipped $0.52, or 1.31 percent, on Wednesday in light of Shammo's revelations.
One recent report hinted that Verizon was driving up the prices of high-end Android phones in order to make up money lost from larger subsidies for the iPhone. For instance, the Motorola Droid RAZR and Google/Samsung Galaxy Nexus are priced at $299, despite having the same no-contract $649 price as the iPhone 4S, which sells for $199 on contract. As such, it appears Apple is receiving a $450 subsidy, while Android licensees get just $350.
Rival carrier AT&T will have outpaced Verizon in the fourth quarter with sales of 6 million smartphones in just the first two months of the period, compared to Verizon's overall smartphone sales of 6.4 million in the December quarter. AT&T, which enjoyed several years of iPhone exclusivity in the U.S., has endured its own margin squeeze due to iPhone subsidies.
Verizon's short-term margin dip will likely result in Apple's gain. The Cupertino, Calif., company is set to report its best quarter ever on Jan. 24. Apple has said it is "confident" it will set all-time records for iPhone and iPad sales in the holiday quarter.
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