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Verizon May Owe Apple $14B Over Slow iPhone Sales

By - Source: LA Times | B 22 comments

The LA Times reports that Verizon Wireless may end up owing $14 billion to Apple. That's because the company must sell $23.5 billion worth of iPhone units this year to meet a commitment it made with Apple back in 2010. To do this, Verizon must double its iPhone sales of last year. Unfortunately, iPhone sales just aren't all that great thanks to larger, zippier Android phones dominating the market.

"It is likely that Apple would be reluctant to simply ignore these commitments, since many other carriers around the world are probably in a similar situation, and a simple amnesty would set an unwanted precedent," Moffett Research said in a report released this week. "It is therefore unrealistic to think that Apple won’t extract some consideration for renegotiating these shortfalls."

Vodafone, the parent company of Verizon Wireless, reported at the end of 2010 that Verizon had $45 billion in purchase commitments over a three-year period. According to Moffett Research, this commitment is likely to Apple, as the Big Red began selling its first iPhone in 2011.

"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," the report stated.

Nomura analyst Stuart Jeffrey is reportedly saying the same thing, that Verizon is going to owe Apple's $23.5 billion this year as part of its agreement to carry the iPhone. But due to slowing sales of Apple's flagship phone, Verizon may not make enough to cover the $23.5 billion bill. The Big Red has likely sold only 7.2 million units in the first half of 2013, and may sell up to 10.8 million units in the second half. That leaves 19 million units unaccounted for.

The kicker is that Verizon must pay for all iPhone units even if they don't actually sell them, and why Verizon is predicted to owe $12 billion to $14 billion.

"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 said in its report. "However, it seems likely that Apple will extract at least some consideration for a contract shortfall of this apparent magnitude."

Forbes speculates that Verizon may have jumped the gun when it signed on to carry the iPhone. AT&T's exclusivity had ended, thus allowing Apple to demand stiff commitments in terms of future volumes that in turn wireless carriers had to guarantee. Thus here's this massive commitment Verizon must honor while Samsung and Android eat away at iPhone sales.

That said, should Verizon be left with the tab when consumers aren't eating iPhones like they were in 2011? The Moffett report stated that other wireless carriers around the world may be experiencing iPhone deficits as well. Analysts project that Apple will report a 22 percent decline in net income to $6.87 billion in the third fiscal quarter.

If anything, Verizon may be forced to pay a percentage of what's owed to Apple in order to continue to sell the iPhone in 2014.

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  • 1 Hide
    tntom , July 14, 2013 12:21 PM
    We have been warned. We know what comes next.

    Don't worry about it! We have already introduced erroneous billing errors that will either go unnoticed by the customer or they will give up after 2hrs on hold with our billing department.
  • 0 Hide
    PedanticNo1 , July 14, 2013 12:42 PM
    Took long enough.
  • 8 Hide
    SR-71 Blackbird , July 14, 2013 1:09 PM
    Iphone's can't touch the newest droids.
  • Display all 22 comments.
  • 3 Hide
    JOSHSKORN , July 14, 2013 2:15 PM
    Now might be a good time to re-introduce that $30 unlimited data plan for iPhone users.

    Bear with me here...get the iPhone, get the data plan, then switch back to Android.
  • 4 Hide
    anononon , July 14, 2013 2:17 PM
    Good, I hate verizon and they are def. the poster child of wireless d-bags.

  • 8 Hide
    Martell1977 , July 14, 2013 2:24 PM
    This explains why when I went into Verizon to upgrade my phone the CSR kept trying to push an iPhone on me. I asked about the Galaxy S3 and was told the iPhone 4 was better. I asked about a Windows Phone and was told that iOS was better. No matter what I said, the CSR stated the apple was the way to go.

    I ended up getting a Nokia Lumia 822 Windows Phone (which is great, no complains at all..so far). No matter how many times I told the CSR I have no interest in apple products, he wouldn't stop.
  • 0 Hide
    Azn Cracker , July 14, 2013 3:05 PM
    fire sale please!
  • 0 Hide
    acadia11 , July 14, 2013 4:03 PM
    Thank Gawd I love my bberry Z10! Best browser on a phone I've ever used, best keyboard too.
  • 1 Hide
    rwinches , July 14, 2013 5:52 PM
    It may well be that Verizon does not offer an unlimited data plan.
    http://www.whistleout.com/CellPhones/Unlimited-Data-Plans-For-Cell-Phones
  • 1 Hide
    bebangs , July 14, 2013 6:26 PM
    This is how apple sell business. If you want to sell apple products, there's a minimum amount to meet, too bad for verison it's 25billion. sucks to be you.
  • 0 Hide
    razor512 , July 14, 2013 8:59 PM
    Guess they should stop ripping people off on the phones. offer a firesale. latest iphone for $129 (no need to be a verizon wireless customer)

    that shortfall will be done overnight and they will likely not really lose much money at all. (the iphone has a massive profit margin and apple and verizon both make a huge chunk on the sale price)
  • 2 Hide
    bustapr , July 14, 2013 9:14 PM
    they wanted to deal with apple and sell their own souls to be able to sell the phone, they suffer the consecuences. this is what happens when big companies get overconfident enough to make the deal with the the one company that would no sooner screw over their customers in a court than theyd renegotiate anything.

    if apple is in any way half smart, they would waver this contractual agreement and negotiate another deal with verizon. if apple were to pursue the owed money, theyd be down one major carrier and the stocks would have the biggest plummet theyve ever seen. verizon would have troubles with this debt and apple would take them to court, all the while investors start going ape shit because sales keep falling and apple is too preoccupied with screwing over theyre major customer in court to care.

    I dont really like verizon, but I wouldnt want them to go down(with all those thousands of USA jobs they carry). apple would do good in not playing the bad guy in this situation. and verizon would do good in tuning down the cockiness.
  • 1 Hide
    digiex , July 14, 2013 11:02 PM
    That will hurt the investors pockets.

    ...In future news... Verizon files for bankruptcy due to sluggish iPhone sales.
  • 0 Hide
    Vorador2 , July 15, 2013 12:28 AM
    Dealing with the devil will get you burned. :-P
  • 0 Hide
    rwinches , July 15, 2013 2:17 AM
    Heres another reason it sucks to have an iPhone deal or any other like Galaxy
    "$30 billion each year replacing lost and stolen devices"
    http://www.huffingtonpost.com/2013/07/13/smartphone-black-market_n_3510341.html?utm_hp_ref=technology
  • 1 Hide
    EddieLomax , July 15, 2013 2:31 AM
    Mind blowingly dumb decision to sign up to selling a quantity of a future product that did not exist at the time without some sort of safety clauses.
    If they were smart then they should have added a clause tying the minimum quantities to worldwide numbers, so if everyone sells less of them then they don't get burned like this.

    While I guess the execs were not smart with the companies money they probably were obscenely well paid, so smart with their own money...
  • 1 Hide
    CaedenV , July 15, 2013 4:27 AM
    Talk about an akward situation!
    Apple is no longer the king of the hill and is quickly falling out of the lime light with investors and those that they do business with. VZW on the other hand has taken a commitment that was unrealalistic.
    If apple sues for the money then they will at the very least loose a vendor that they need. If they let verizon go scott-free then I am sure there are several other vendors who will follow suit.
    My bet is that verizon will make some claim that sales were slow because Apple failed to deliver a compelling product which was promised at the signing of the contract. The 4s was a big step up from the 4, but still lagged behind others. The 5 brought some platform changes, but generally received bad press, while the 5s or 6 which is coming down the line will bring even more questionable changes to the OS while falling further behind on hardware. The release with new hardware will push a lot of units, but not enough to cover the gap that is coming.
  • 0 Hide
    hotice , July 15, 2013 9:34 AM
    If Verizon was smart they would tell Apple they're not giving them any extra money they owe because the iPhone isn't worth selling. If Apple is ok with that Verizon will continue to sell the iPhone. If Apple doesn't like that Verizon will not sell them anymore. That would hurt Apple much more than Verizon.
  • -1 Hide
    lamorpa , July 15, 2013 11:14 AM
    14B of Apple phones, or 14B of outdated iPhone 5's and antique iPhone 4/4S's?
  • -1 Hide
    tomrippity02 , July 15, 2013 12:42 PM
    Verizon does have some leverage in this situation. They are a major retailer of the iPhone and Apple can't afford to lose the marketshare that Verizon brings to the table. Verizon should request major relief from Apple or threaten to stop selling the iPhone after the current contract ends. Apple would gain 14B in the short term and lose far more for making ridiculous requests of their partners.

    Most people aren't going to jump from Verizon to AT&T simply because they want an iPhone. Many will, most won't.
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