Is Verizon's Shortfall Really an iPhone Shortfall?
If you haven't read about in the media.....
Verizon apparently contracted with Apple to sell a minimum dollar amount in Apple product by the end of 2013, and apparently they are on track to miss that number by $12B to $14B.
If this occurs, then Apple will either be
- sending a bill to Verizon for the difference,
- selling Verizon a load of iPhone stock intended for future sales (hurting Apple's 2014 fiscal numbers)
- renegotiating the contract with a new end date and a new dollar amount
Lots of people who have paid early-termination fees on Verizon contracts are laughing it up at the thought of Verizon signing a contracting and having to cough up a lump-sum of money.
Much of the media is spinning this as "lagging iPhone sales" at Verizon not meeting expectations.
I'd like to spend some time asking about that supposition. Since Verizon started selling the iPhone it has done pretty well:
- iPhone accounted for 55% of smartphone sales at Verizon in 2011 Q4
- iPhone accounted for 51% of smartphone sales at Verizon in 2012 Q1
- iPhone accounted for 46% of smartphone sales at Verizon in 2012 Q2
- iPhone accounted for 46% of smartphone sales at Verizon in 2012 Q3
- iPhone accounted for 63% of smartphone sales at Verizon in 2012 Q4
- iPhone accounted for 55% of smartphone sales at Verizon in 2013 Q1
- iPhone accounted for 52% of smartphone sales at Verizon in 2013 Q2
It seems to me that the question you have to ask yourself is this..... Did Verizon executives of 2010 want Apple's iPhone to constitute 65% to 80% of their total smartphone sales or did Verizon expect Apple to be around 50% with their overall smartphone user base being much larger?
We do know that iPhone sales at AT&T have accounted for 65% to 85% of AT&T's total smartphone sales. This has made AT&T dependent on Apple for their revenue and has put Apple in the driver's seat in contract negotiations. AT&T executives have identified this as a problem for the company since they are pretty much hitched to Apple's wagon.
Verizon on the other hand has been actively marketing their "Droid" brand since 2009. It is hard to imagine a world where Verizon executives expected Apple's iPhone to make up 65% to 80% of Verizon's smartphone sales. Indeed, Verizon would not want this to be the case.
Therefore, saying that iPhone sales have failed to meet Verizon's expectations is extremely misleading. It would be far more accurate to say that Verizon's smartphone sales in general have failed to meet their expectations. The only problem for Verizon is that they signed a contract with Apple to sell a minimum number of iPhones. So now they are on the hook. This sounds a lot like another story I read a while back involving Cricket. In that case, the CEO of Cricket was trying to blame Apple's iPhone when in fact his overall smartphone sales had plunged as subscribers moved to other carriers.
Tell me what you think. Do you really think Verizon expected and wanted iPhone to make up a greater percentage of their sales or do you think Verizon expected their overall smartphone sales to be higher in general with Apple's iPhone accounting for around 45% to 65% of that?