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Report: Verizon expected to eat up AT&T iPhone sales, add 14%


Piper Jaffray analyst Gene Munster expects Apple to sell just 2.5 million additional iPhones in the US by adding Verizon as a carrier early next year, bringing 2011's US iPhone sales to 20 million, with Verizon's sales largely coming at the expense of AT&T.

In a research note provided to AppleInsider, Munster wrote that his firm's numbers have "baked in" the assumption that Apple will release the iPhone on Verizon in early to mid 2011, currently modeled by Piper Jaffray to occur midway through the March quarter.

Given AT&T's 5.2 million iPhones sold in the third quarter 2010, which Piper Jaffray estimated to be 80 percent of all of AT&T's smartphones sold, Munster said the iPhone "has found continued success despite increased competition in the smartphone category and grew 65 percent year over year at AT&T" in that most recent quarter.

Munster believes he is conservatively modeling iPhone sales at Verizon to assume that the iPhone will make up a smaller proportion of that carrier's smartphone mix than it does at AT&T. The firm estimates Verizon will sell about 25 million smartphones in 2011, and that just 36 percent, or 9 million, will be iPhones.

Munster expects the majority of those Verizon iPhones to be switchers from AT&T, suggesting that the addition of Verizon will only result in 2.5 million more US iPhones sold in 2011, or roughly 14 percent more than Apple could sell at AT&T alone.

The report models AT&T selling 17.5 million iPhones next year were it to have no competition with Verizon; with both carriers selling iPhones, Munster believes AT&T will sell 11 million and Verizon will sell 9 million. He also notes that these figures "may be conservative."

This calendar year, AT&T is expected to have sold 15.6 million iPhones, or 34 percent of those sold globally. With Munster's projection of sales cannibalization from Verizon, AT&T's estimated 11 million iPhone sales would reduce it to being just 17 percent of worldwide iPhone units. Global sales of the iPhone are expected to grow from this year's 46.3 million total to 63 million in 2011.

In 2012, Munster estimates Apple will sell a total of 78.3 million iPhones, with AT&T and Verizon both selling around 14 million each, for equal 18 percent shares of the worldwide figure.

Conservative estimates for Verizon's iPhone

Other analysts have provided an even weaker outlook for a Verizon iPhone launch, according to a recent report by Philip Elmer-DeWitt of Fortune.

That report noted that BMO Capital Markets estimates Apple would only sell 8 million iPhones with Verizon, while Barclays Capital's James Ratcliffe predicted 9 million, and Merrill Lynch's Scott Craig estimated sales of "at least ten million units at Verizon." Stifel Nicolaus' Doug Reid thinks Apple will only sell less than a million more iPhones in total by partnering with Verizon next year.

Craig at Merrill Lynch did note that Apple has seen much better results in other markets where it has expanded beyond exclusivity with a single carrier. "Historically, when the iPhone has been added to a second carrier in a country (France, Norway, Canada, UK, etc)," Craig wrote, "iPhone shipments increased nearly 1:1 with subscriber base, indicating minimal/no share loss at the incumbent carrier. We are more conservative in our estimates, given the more recent increased competition from Android devices and some likely cannibalization at AT&T."

Recent sales reports have indicated that Verizon's faith in Android has weakened significantly since the launch of iPhone 4. AT&T has retained the ability to sell 2.5 times as many iPhones as Verizon could sell Android phones over the same period, despite Verizon having better 3G coverage in many key markets and a wide selection of Android models.

In 2009, Verizon made a dramatic shift from RIM's BlackBerry to Android after RIM failed to deliver popular new smartphones that could drive sales growth comparable to the iPhone. Verizon sells significantly fewer smartphones than AT&T, despite having a slight lead in the total number of subscribers.

If the iPhone is able to enhance Verizon's proportion of smartphones sold, it could prove disastrous for Android on a scale similar to that seen by RIM, which slipped from being nearly 90 percent of Verizon's smartphone mix to less than 20 percent in the last year. Additionally, the more iPhones Verizon can sell as upgrades to existing feature phone users, the less cannibalization AT&T is likely to suffer from network switchers.