Does Verizon Shortfall Mean the iPhone is Fully Saturated?

Joe Goldman |

Just months ago, Apple (AAPL) was the juggernaut of the tech world. Its products dominated numerous markets, its executives could do no wrong, and its stock topped $700 per share on the world’s largest market cap.

However, since last summer, Apple’s image has transformed from darling to disappointment, the consequence of a lack of innovation, frustratingly cautious decisions from management, and eroding iPhone market share. New reports, moreover, indicate that demand for the iPhone, Apple’s primary source of earnings, is getting even worse.

According to MarketWatch and Moffett Research, Verizon (VZ) approximately doubled its iPhones purchases from last year and therefore tremendously overcommitted itself to selling iPhones. The carrier could owe Apple as much as $23.5 billion, while Stuart Jeffrey of Nomura believes that Verizon could owe Apple another $12 billion based on his weak iPhone sales projections.

In the near term, Verizon would bare the burden of the sales shortfall. However, both Moffett and Jeffrey believe that it's unlikey Verizon will be on the hook for the full amount, expecting Apple and Verizon work out a compromise to maintain a healthy business relationship.

However, in the long haul, the report is a foreboding sign for Apple and its shareholders. Other carriers will unquestionably slash their iPhone orders for next year to avoid a Verizon-esque shortfall. More importantly, the report raises the question whether the iPhone market is entirely saturated, especially with sales decelerating and Apple upgrading its phone in modest, insignificant yearly increments.

Relatively, Samsung’s poor sales numbers last month indicated that perhaps the smartphone market as a whole has become saturated. Both Apple and Samsung reaped the benefits of a global movement from “dumbphones” to smartphones, a technological revolution that seems to be in its mature stages.

For iPhone sales to recapture growth, Apple needs a game changer. A fingerprint scanner could be destined for the iPhone 5S, and while the idea is both useful and cool, competitors will certainly come out with new gadgets and features of their own.

Apple shares traded up 1.54 percent on Thursday to $427.22. However, the rally is little relief to investors who have held the stock since last summer, losing over 40 percent since the peak last September.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 109.00 -0.90 -0.82 5,736,339
VZ Verizon Communications Inc. 50.03 0.22 0.44 1,127,154
AVLP Avalanche International Corp 0.45 0.00 0.00 0

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