SAN FRANCISCO (MarketWatch) - Verizon Wireless may be hard-pressed to sell the number of iPhones it has committed to purchase from Apple Inc. this year, according to a pair of analyst reports on Thursday.
Bloomberg News/file 2012
Based on these estimates, Verizon may owe as much as $23.5 billion to Apple this year based on the amount of iPhones it has committed to sell. Telecommunications analyst Craig Moffett of Moffett Research estimates that is more than double what the carrier purchased last year from Apple, based on data disclosed in securities filings and Verizon's reported iPhone sales.
The purchase commitments, disclosed in securities filings, don't specify Apple directly, and likely include other obligations such as equipment. But Moffett notes that the small size of the commitments from before Verizon began selling the iPhone indicated that the 'vast majority' of the current amount must be to Apple.
In his own report, Stuart Jeffrey of Nomura says his projections for how many iPhones Verizon will sell this year would leave the carrier owing Apple another $12 billion.
Verizon declined to comment on the reports, and an Apple representative did not return a message seeking comment. Apple's shares were trading up 1.5% to $427.05 on Thursday while Verizon shares were up nearly 1%.
Both analysts believe the two companies would figure out a compromise on such a shortfall, but its difficult to project the specifics of such an arrangement.
'We certainly don't expect that Verizon will have to write a check to Apple for $12 billion or so to make good on its seemingly inevitable shortfall,' Moffett wrote in his note, before adding that 'however, it seems likely that Apple will extract at least some consideration for a contract shortfall of this apparent magnitude.'
Verizon reports its second-quarter results next Thursday. Apple will post its own results for the June quarter on July 23.
Neither Apple nor Verizon has publicly commented on the purchase commitments. Verizon first started selling the iPhone in early 2011 after archrival AT&T had the popular smartphone locked up in an exclusive deal with Apple for its first four years on the market in the U.S.
Moffett, who initiated coverage of Verizon on Tuesday, noted in his report that filings from Vodafone -which owns 45% of Verizon Wireless - disclosed $23.5 billion in 'purchase commitments' due this year at the carrier. Verizon began reporting a massive total of commitments above $40 billion in early 2011, when first started selling the iPhone.
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'Few if any other handset suppliers require purchase commitments of this kind, and, again, it is noteworthy that the total commitment was almost zero until Verizon contracted with Apple for the iPhone for the first time,' Moffett wrote.
Nomura's Jeffrey believes that Apple would be hesitant to harm such a major customer as Verizon. But the company would also not want to come under pressure to let other carrier customers out of their commitments - especially given the struggles the iPhone 5 is having in a saturated smartphone market.
'If Apple does not impose terms on Verizon Wireless, then other operators may believe that they too will not be punished by missing their commitments,' Jeffery wrote. 'The result of this could be that operators reduce their marketing support for the iPhone, in the hope of steering demand to Android phones that incur lower subsidies.'
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