Wireless Providers Underperform as Costs to Carry iPhone Drain Profits (AAPL) (VZ) (T)
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Price: $172.69 -2.19%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 0.5%
EPS Growth %: -0.7%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 0.5%
EPS Growth %: -0.7%
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Traders may want to take note of an emerging counter-trend in the wireless sector: following the initial wave of euphoria as the iPhone became more and more popular -- meaning burgeoning new or renewed contracts at service providers -- Apple's (Nasdaq: AAPL) clout may now be getting ahead of itself.
Verizon (NYSE: VZ) and AT&T (NYSE: T) are great examples. While the stocks have become solid dividend plays (yielding 5.3 percent and 5.9 percent, respectively), shares have underperformed the broader stock market rather sharply this year. Verizon shares are down 6 percent in 2012, while AT&T shares have fallen about 1.5 percent. In contrast, the S&P 500 is up nearly 7 percent since the start of the year.
Investors may be starting to recognize the minimal profits drawn from the sale of any of Apple's iPhone models, a product which once brought on fuzzy thoughts of recurring earnings to investors in the wireless sector. Remember when Verizon or Sprint (NYSE: S) first got the iPhone? The headlines which followed were nothing short of angelic to shareholders.
Unprecedented demand for Apple's latest model, the iPhone 4S, drove the company's first-quarter figures well past what could accurately be called a "blow-out"; this is well known. On the other side of the transaction, however, both Verizon and AT&T missed the Street's estimates last quarter.
Although Apple certainly deserves its "fair" share of the profits, the company may be a large factor pushing carrier's margins to dangerously razor-slim levels.
Sharp increases in mobile phone data usage recently (with the iPhone certainly a large contributor to that trend) has required service providers to continuously lift their usage and plan rates and consequently deal with customer outrage. Providers have even implemented tactics such as slowing data speed on users who exceed data usage levels.
While Verizon undoubtedly wants to retain its position as the number one carrier in the U.S., management may need to consider at what expense is the title coming to them. In the future, service providers may look to go back to the drawing board with Apple and renegotiate the terms of their respective deals. New contracts in the future could call for a lower percentage of total device sales to go to Apple, or possibly require a percentage of App sales to be given to the service providers. When all is said and done, the future Apple may not be able to bake its cake and eat it too...
Verizon (NYSE: VZ) and AT&T (NYSE: T) are great examples. While the stocks have become solid dividend plays (yielding 5.3 percent and 5.9 percent, respectively), shares have underperformed the broader stock market rather sharply this year. Verizon shares are down 6 percent in 2012, while AT&T shares have fallen about 1.5 percent. In contrast, the S&P 500 is up nearly 7 percent since the start of the year.
Investors may be starting to recognize the minimal profits drawn from the sale of any of Apple's iPhone models, a product which once brought on fuzzy thoughts of recurring earnings to investors in the wireless sector. Remember when Verizon or Sprint (NYSE: S) first got the iPhone? The headlines which followed were nothing short of angelic to shareholders.
Unprecedented demand for Apple's latest model, the iPhone 4S, drove the company's first-quarter figures well past what could accurately be called a "blow-out"; this is well known. On the other side of the transaction, however, both Verizon and AT&T missed the Street's estimates last quarter.
Although Apple certainly deserves its "fair" share of the profits, the company may be a large factor pushing carrier's margins to dangerously razor-slim levels.
Sharp increases in mobile phone data usage recently (with the iPhone certainly a large contributor to that trend) has required service providers to continuously lift their usage and plan rates and consequently deal with customer outrage. Providers have even implemented tactics such as slowing data speed on users who exceed data usage levels.
While Verizon undoubtedly wants to retain its position as the number one carrier in the U.S., management may need to consider at what expense is the title coming to them. In the future, service providers may look to go back to the drawing board with Apple and renegotiate the terms of their respective deals. New contracts in the future could call for a lower percentage of total device sales to go to Apple, or possibly require a percentage of App sales to be given to the service providers. When all is said and done, the future Apple may not be able to bake its cake and eat it too...
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