Verizon Could Face Up to $14 Billion in Unsold iPhone Purchase Commitments for 2013

Bloomberg yesterday reported on a research note from analyst Craig Moffett pointing out that Verizon could potentially face a massive bill from Apple of up to $14 billion this year based on current iPhone sales rates and the carrier's commitment to purchase a minimum number of iPhones from Apple.

Under a multiyear deal signed with Apple in 2010, Verizon Wireless is obligated to buy $23.5 billion worth of iPhones in 2013 alone, according to Craig Moffett, a telecommunications analyst who left Sanford C. Bernstein & Co. earlier this year to start his own research firm. Since the purchase commitment is more than twice what Verizon Wireless sold in 2012, the company may have a shortfall of $12 billion to $14 billion, worth $4 to $5 per share, Moffett said in the report.

Apple routinely requires new iPhone carriers to commit to purchasing a certain number of iPhones over a period of years, a requirement that has led some carriers to balk at offering the device.

As Moffett points out, Apple's contract with Verizon requires the carrier to purchase more than twice as many iPhone this year as it did last year. During the first quarter of 2013, Verizon activated four million iPhones on its network, a figure representing roughly $2.5 billion in hardware value at Apple's average selling price of about $613 per unit.

verizon_iphone_cook
While the first quarter may have been a somewhat slower one for the iPhone at Verizon following the iPhone 5 launch in September 2012, it only represented a 25% increase in units over the first quarter of 2012, indicating that the carrier is indeed well behind pace for meeting its purchase requirements for 2013.

moffett_verizon_commitments

Amounts in millions of dollars (Source: Moffett Research, company reports)

Apple is expected to introduce an upgraded iPhone 5S later this year, with a lower-cost plastic iPhone also apparently in the works, but it seems unlikely that those launches will be able to generate the massive increase in sales volume needed at Verizon to meet the carrier's contract requirements.

Moffett notes that it is unlikely Apple will require Verizon to pay the full amount of any shortfall this year, particularly if it reaches the $12-14 billion amount estimated by Moffett, but that any renegotiations will likely see Apple extracting some concessions from Verizon as the iPhone maker seeks to hold other carriers to their commitments.

Update: Nomura analyst Stuart Jeffrey has released his own note examining the situation and concurs with Moffett that Apple and Verizon are in a difficult spot. Verizon disclosed at the end of its 2012 financial statements that it holds $23.5 billion in purchase commitments for 2013, with Moffett and Jeffrey both believing that the iPhone accounts for the vast majority of that amount.

Jeffrey notes that Verizon could still satisfy its obligation by making a massive advance purchase of iPhones for 2014 at the end of 2013, although such a purchase would obviously have an effect on any purchase requirements to be built into a renewal contract with Apple. Alternatively, Apple could simply allow Verizon to roll over its commitment into 2014 in order to prevent Verizon having to make a massive expenditure at the of the 2013, although such an allowance would undermine Apple's minimum purchase agreements with other carriers.

Top Rated Comments

(View all)
Avatar
95 months ago
And the geniuses keep training to push their employees to sell non iPhones....
Score: 34 Votes (Like | Disagree)
Avatar
95 months ago
Wasn't Verizon one of the carriers offering its sales folks bigger incentives to sell anything but the iPhone, such that these folks started steering even iphone intenders to other brands?

Kinda schizophrenic if you ask me.
Score: 30 Votes (Like | Disagree)
Avatar
95 months ago
Put the blame on Verizon

If this is true, Verizon should be to blame. Every time you go to a Verizon store the sales people are never pushing the iPhone. If you ask about the iPhone, they immediately try to get you to buy a different phone. Their sales reps are obviously incentivized to sale other phones, not iPhones.
Score: 26 Votes (Like | Disagree)
Avatar
95 months ago
Very bad news for Apple.
Score: 21 Votes (Like | Disagree)
Avatar
95 months ago

Very bad news for Apple.


How is that?

Read the thing through, not just the headline, and you'll begin to realize why analysts have a worse reputation that lawyers or politicians!
Score: 19 Votes (Like | Disagree)
Avatar
95 months ago

How is that?

Read the thing through, not just the headline, and you'll begin to realize why analysts have a worse reputation that lawyers or politicians!


Well no carrier will agree to a similar purchase order in the future, that's for sure.
Score: 15 Votes (Like | Disagree)

Top Stories

New Photos Offer Better Look at iPhone 12 Color Options

Tuesday October 20, 2020 2:34 am PDT by
As we wait for the iPhone 12 review embargo to lift later today, more pictures are circulating of the devices in real-world lighting conditions, providing a better look at the different colors available. Leaker DuanRui has shared images on Twitter of the iPhone 12 in white, black, blue, green, and (PRODUCT)RED. The black and white colors are similar to the iPhone 11 colors, but the other...

iPhone 12 Pro in Graphite and iPhone 12 in Blue Shown Off in Unboxing Videos

Monday October 19, 2020 8:20 am PDT by
While the iPhone 12 Pro does not launch until Friday, we now have an early unboxing video of the device courtesy of Twitter account DuanRui, providing a closer look at the shiny new flat-edge design and sleek Graphite color option. Ben Geskin re-uploaded the unboxing video to YouTube, which we've embedded below: Geskin has also uploaded an unboxing video of the iPhone 12 in Blue: ...

Apple Releases iPadOS and iOS 14.1 With Multiple Bug Fixes Ahead of iPhone 12 Launch

Tuesday October 20, 2020 10:06 am PDT by
Apple today released iOS and iPadOS 14.1, the first major updates to the iOS and iPadOS 14 operating system updates that were released in September. iOS and iPadOS 14.1 come a week after Apple released the golden master versions of the updates to developers. The iOS 14.1 update can be downloaded for free and it is available on all eligible devices over-the-air in the Settings app. To access...

Watch: iPhone 12 and iPhone 12 Pro Unboxing Videos and First Impressions

Tuesday October 20, 2020 6:05 am PDT by
Apple's embargo has lifted for iPhone 12 and iPhone 12 Pro reviews. In addition to our detailed review roundups for each device, we've rounded up over a dozen unboxing videos and first impressions below. iPhone 12 in Blue on left and iPhone 12 Pro in Pacific Blue on right via Engadget Key new features of the iPhone 12 and iPhone 12 Pro include a flat-edge design, 5G support, a much faster A14 ...

Gold Version of iPhone 12 Pro Apparently Has a More Fingerprint Resistant Stainless Steel Frame

Tuesday October 20, 2020 11:56 am PDT by
iPhone 12 Pro reviews hit the web today, and one of the more interesting tidbits came from TechCrunch's Matthew Panzarino, who revealed that the Gold version of the device apparently has a more fingerprint resistant coating applied to the stainless steel frame. From his review:Most of the iPhone 12 Pro finishes still use a physical vapor deposition process for edge coating. But the new gold...

Photographer Austin Mann Tests the iPhone 12 Pro's Camera

Wednesday October 21, 2020 4:14 am PDT by
Travel photographer Austin Mann usually performs an in-depth review of new iPhone models to test their camera performance in real-world scenarios. To test Apple's new iPhone 12 Pro, Mann traveled to Glacier National Park, Montana. Mann focused on some of the biggest camera upgrades with the iPhone 12 Pro, including the upgraded Wide lens, Ultra Wide Night mode, and LiDAR autofocus, across a...

iPhone 12 Pro Max Has Smaller 3,687 mAh Battery According to Regulatory Filing

Tuesday October 20, 2020 8:48 pm PDT by
Apple's new iPhone 12 Pro Max is equipped with a 3,687 mAh battery, which is around 7% less capacity than the 3,969 mAh battery in the iPhone 11 Pro Max, according to a regulatory filing published by TENAA, the Chinese equivalent of the FCC. The regulatory filing, spotted by MacRumors, also lists the iPhone 12 Pro Max with 6GB of RAM as seen in benchmark results last week. Apple has filed ...

5G Drains iPhone 12 Battery 20% Faster Than 4G in Benchmark

Wednesday October 21, 2020 3:17 am PDT by
After the first reviews for the iPhone 12 and iPhone 12 Pro emerged yesterday, a new report by Tom's Guide reveals the extent of battery life reductions when using 5G. The report outlines a test wherein the iPhone surfs the web continuously at 150 nits of screen brightness, launching a new site every 30 seconds until the battery drains. Interestingly, the test was run on an iPhone 12 and...

Hands-On With Apple's iPhone 12 and 12 Pro MagSafe Cases

Tuesday October 20, 2020 1:33 pm PDT by
Apple's iPhone 12 and 12 Pro are launching this Friday, and ahead of that release date, Apple is shipping out various accessories like the MagSafe charger and MagSafe cases. Yesterday we took a look at the MagSafe charger, and today our MagSafe case came in the mail, so we thought we'd take another look at the charger to see how it works with the case and just how strong the case magnets are. S ...

Reliable Leaker Suggests AirTags 'Coming Soon' in Two Different Sizes

Tuesday October 20, 2020 1:53 am PDT by
Apple's rumored AirTags Bluetooth tracking devices could launch imminently and will be available in two size options, based on new tweets from cryptic-but-reliable leaker L0vetodream. In typical enigmatic style, the leaker first tweeted this morning that a "big one" and a "small one" are "coming soon," but withheld what they were referring to. However that was followed an hour later with the ...