Carriers May Soon Revolt Against The iPhone [Analyst]



Conventional wisdom on Wall Street has it that eventually (and possibly as soon as the end of this year) Apple’s stock price will reach over $1000 a share, largely fueled by the iPhone. But one Wall Street analyst isn’t nearly so optimistic. In fact, BTIG Research analyst Walter Piecyck is downgrading his recommendation on Apple stock from “Buy” to “Neutral…” and his reasons actually make a lot of sense.

“We continue to maintain our view that Apple is the primary beneficiary of an accelerating growth trend in the global adoption of smartphones, considering global penetration of smartphones has not yet even reached 30%,” Piecyk wrote to clients this morning. “However, given the run up in Apple’s stock and the consensus estimates, we think now is a good time to more carefully consider how it will capitalize on the next and likely much larger leg of growth in the industry and prepare for the inevitable bumps that may occur on the way.”

Why? Carriers are paying Apple way more money than they can afford to subsidize the iPhone for their users, and while that once seemed like a winning strategy, with carriers like Sprint now looking at a $20 billion bill over the next four years just to keep the iPhone on their network, it’s becoming clear that this sort of expenditure can’t last forever.

“Subsidies by post-paid wireless operators have fueled the growth of Apple’s $600 iPhone since its inception” wrote Piecyck. “Even in the pre-paid dominant markets of China and Europe, heavily subsidized iPhone’s are available to users willing to sign up for a contract. Wireless operators have been happy to subsidize smartphones to new and existing customers in order to provide a lift to the average monthly bill (ARPU) of their customer base, a metric which had been falling for the past three decades.”

“The positive inflection point in ARPU was cheered by investors but the cost to drive that ARPU accretion is now starting to eat away at profitability and the performance of those stocks. Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract. We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike.”

Ultimately, BTIG actually sees Apple making $1 billion in revenue in the third fiscal quarter than Wall Street consensus. Chump change to Apple, but enough, possibly, to finally stall Wall Street’s omnivorous hunger for AAPL stock.

Plausible enough to our eye, but Apple’s a company that constantly surprises us and manages the seemingly impossible.

[via BGR]

  • dcj001

    This is not “conventional” “wisdom.” This is one person’s speculation.

  • Srose428

    My “Conventional Wisdom” ignore anything and everything Walter Piecyck predicts. The number 1, 2, & 3 phone sold in the US is an iPhone (4s,4,3s) So do tell me how carriers will revolt? Seriously neutral??

  • Sandman619

    Because Apple doesn’t focus on the near term figures only, they won’t simply cut their revenues for an extra increase, albeit small, in market share. They are focused on profit instead. By not playing in the race to the bottom for profits, Apple has maintained a healthy profit & their reputation for design has kept their products dominant among their competitors. Apple is proving that the race to the bottom for profits engenders little customer loyalty, doesn’t help nurture great products & results in only mediocre corp performance at best. Hopefully some CEOs, current & those running up the ladder are learning from Apple’s successes. As for the carriers, Apple won’t sacrifice their success if carriers won’t pay for their devices, but Apple will remain in the driver’s seat

    Cheers !

  • Cole Shores

    Completely agree with Sandman619. To add to what you just said as well… the analyst claiming that China will not be as big of a boom for Apple… Opening day numbers caused a riot outside the Beijing store. Based on that alone makes me wonder what the hell is he smoking.

  • Cole Shores

    The analyst doesn’t get that Apple is a Research and Development company first and foremost. The most recent acquisitions in mapping tech points to Apple leap frogging Google maps/navigation for a fully textured city in real time using 4G. Its that kind of perfectionism that makes Apple a premium brand. The carriers would be stupid to neuter the subsidization. The first one that does that will experience a mass exodus. What I do see happening is AT&T pushing hard on the Lumina 900 Windows phone that is extremely inexpensive through agressive marketing to pull people away from iOS. The problem with that strategy is that users are willing to pay a bit more for quality, support, software/hardware technology.

  • spgreenb

    Since Apple is by far the most dominant force in the smart phone market, any carrier that drops the iPhone will receive such negative press that the move will not pay off. Even those that do not use iPhones will subconsciously view that carrier as inferior. Apple has enough power to control the game for a good while longer.

  • aardman

    Drop their subsidies? No they won’t. Exactly how will that happen? They all drop their subsidies simultaneously? The DoJ will be thrilled about that. One carrier drops its subsidy and hope that the rest, in the spirit of camaraderie, will follow? Suuuuuure. What is more likely is that all the carriers start whispering that they’re dropping their subsidies and then when the day comes, each one holds back hoping that it has successfully suckered its competitors into dropping their subsidies.

    Really, some analysts are just plain, there’s no other word for it, stupid. If they could get away with not giving such hefty subsidies, wouldn’t they have dropped the subsidies long ago?

  • sonofsci

    Apple needs to start a carrier of their own with their stockpile of billions in cash that “just works”. Give us some unlimited and fast plans with good coverage.

  • Wayne Luke

    They won’t revolt. They will increase the contract length to 30 months and then again to 36 months within the next three years. They will continue to sell this and other high-end smartphones with subsidies while trying to convince customers to purchase cheaper smartphones. They will also ramp up advertising for their pay-as-you-go ala cart services and phones.

  • Steven Zahl

    $1000 Share price is a Bubble. $800 is OK.

  • mirixee

    Carriers are already doing a “revolt”. Where I work, discounts applied to retain customers on non-iPhone contracts are much better than for iPhone contracts, and sales agents get commission based on the percentage of non-iPhones they’re able to sell. Furthermore, this is becoming an easy sell based on the features and release cycles of the competitors.

  • ctt1wbw

    I don’t see it happening. Carriers are TRYING to get the iPhone because they know that phone brings in customers. This means that carriers have more customers to charge exhorbitant fees too, which means even more revenue. Just look at Sprint. They got tons of new customers just because the iPhone came to Sprint.

  • Cole Shores

    $1000 Share price is a Bubble. $800 is OK.

    $1000 isn’t a bubble. Its a stock split.

  • Cole Shores

    They won’t revolt. They will increase the contract length to 30 months and then again to 36 months within the next three years. They will continue to sell this and other high-end smartphones with subsidies while trying to convince customers to purchase cheaper smartphones. They will also ramp up advertising for their pay-as-you-go ala cart services and phones.

    Your probably right on the contract length. They will have to or raise per month pricing. I don’t think though they will do ala carte pay as you go. I know Verizon(the carrier I’m with) is vehemitly against that. They wouldn’t lower the monthly bill of my off contract OG Droid so I bought a on contract iPhone instead.