“RadioShack is plunging by 27% in the pre-market after a substantial warning,” Tero Kuittinen reports for Forbes. “Nobody expected this retailer to be in rude health – so why are investors responding so violently? Mostly because the long-term mobile strategy of RadioShack now seems to be in jeopardy. The company pinned its 25 cent earnings warning effectively on competitive pressure on Sprint and a vague, overall consumer softness.”
“We know that AT&T and Verizon sub numbers for 4Q11 were rock solid. There was no sudden deceleration in US post-paid mobile sub growth during the Christmas quarter,” Kuittinen reports. “What we did witness in the US handset market was a remarkable decline in Android market share combined with a strong rise in iPhone market share. The 15 point share decline of the Android phone family detected by Nielsen triggered a variety of issues.”
“HTC‘s handset volumes for November and December decreased sharply. AT&T’s profitability deteriorated as more than 80% of its smartphone activations were now taken over by the heavily subsidized iPhone. Motorola delivered dismal 5% handset revenue growth YoY,” Kuittinen reports. “And now Radio Shack, already weakened by other consumer electronics retail trends, is in big trouble. The iPhone is a raw deal for both retailers and mobile carriers – Apple effectively sucks in profits, leaving its partners weighed down by massive subsidy payments, promotional costs and/or low retail margins. This phenomenon is going global – just last week, KPN shocked European investors with lousy results it blamed on iPhone subsidies and certain consumer trends… The iPhone distribution may turn out to be a poison chalice for Sprint.”
Read more in the full article here.
MacDailyNews Take: Bloodbath. 🙂
[Thanks to MacDailyNews Reader “Since84” for the heads up.]
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AT&T sold 7.6 million iPhones and fewer than 1.8 million Android phones in Q411 – January 26, 2012
Apple’s iOS passes Google’s Android to take U.S. smartphone market share crown – January 25, 2012
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But But, its just like an iPhone. Yeah ok whatever.
I don’t get the Radio Shack part. I bought my niece’s iPhone 4 at Radio Shack.
Retailers make much less overall commission when they sell the iPhone. Very low profit margins on Apple products for everyone but Apple. As we hear more stories like this, and carriers get tired, en masse, of paying these high subsidies, you can expect to see a price increase coming for iPhone 5 (possibly) and beyond. It would not surprise me to see a $299 subsidized iPhone in the near future.
Simply not true for Carriers, they make the subsidy up very easily during the 2 year contract. Retail stores on other hand get more traffic and can sell all manner of high margin accessories.
Yes, it is true for carriers. If they are paying Apple more money to carry the iPhone via subsidies than they are to Samsung to carry the Galaxy S2, it’s obviously going to take the carrier longer to make up the higher subsidy thereby driving down the profit margin. With Apple asserting it’s dominance in the smartphone market over Android, carriers are going to watch their margins erode as more and more customers switch to the iPhone. It’s happening already, just look at AT&T. Both retailers and the carriers make more money when they sell an Android phone. I’ve been in the business and I’ve the numbers. And the iPhone is not driving more customers into Radio Shacks stores over any other store, especially since Apple doesn’t allow”
Discounting on their products. There is no added incentive for me to buy an iPhone at Radio Shack unless it’s just more convenient, and that really didn’t create more foot traffic since I shopping due to circumstance as apposed to product or offer in that instance. With the lower commission Radio Shack is making on the iPhone it doesn’t matter how many high margin accessories I am buying, it isn’t covering the loss in GP. Like I said I fully expect a higher priced iPhone probably sooner rather than later.
There already *is* a $299 subsidized iPhone, as well as a $399 subsidized version that is selling very well. So what is your point?
Thompson
Nice retort…
Does anyone have a clue as to what Thompson is talking about???
Could this be the initial wave of Android adopters’ 2 year contracts running out and they are now free to choose a better phone?
This is the Android bubble bursting.
So it begins… The fall of Android…
Plus RS is working on getting back into DIY stuff. Except for maybe Fry’s, The other don’t and don’t want to enter, Can be high profit for them.
“The iPhone distribution may turn out to be a poison chalice for Sprint.””
You can’t extrapolate Sprint failure from problems with electronics retail outlets. The outlets do not have ongoing revenue from handset sales, and in the case of iPhones, ongoing revenue is substantially higher than with Android handsets.
Yeah, I agree, plus don’t discount the poor performance that sprint has (data) as compared to the other two US iPhone carriers. Sprint needs to clean up their act (I assume it is just som poor configuration issues on their part and not indicative of some systemic failure in their network) or they will be steamrolled flat by AT&T and Verizon.
Just wait till the large lump of ‘roid sufferers contracts are up -android had a hunk of sales between 1-2 year ago, that means look for a huge group of ‘roid defectors fed up with a phone that just works poorly in 3,2,1….-
They are talking “rapid dive” in ‘roid sales now… just wait till the fecal matter really hits the fan. Hell… even WinMo may get some love in the fallout (share increase… a few percent anyway) .
As my cousin the lawyer frequently reminds me: accepting stolen merchandise, no matter how innocently obtained, does not absolve one from guilt himself.
Woe betide those manufacturers and distributors of the stolen Android OS, for they are also liable. Sad but true.
Actually it’s a direct result of Motorola’s stupid commercials for its Droid phones.
Yes, Motorola’s ads fool its customers with unattainable attributes: you could fly, you could be like a droid and so on. Apple’s ads is on practicality, real-life solutions. And people found out that the iPhone delivers on all its claims. Motorola’s is pure flamboyant and exuberant fantasy.
If there is no money in it for the telcos then I am worried about the iPhone’s success. Apple needs as many distribution points actively selling the iPhone and not just carrying it.
Was just about to make the same point. While we wish the carriers were just dumb pipes, there’s a fine line between giving what customers want (iPhones, fast and generous amounts of data) and the carrier’s shareholders demanding better profits. This can translate to reduced ability/willingness to improve their network or de-emphasizing iPhones in their marketing and stores.
Apple does the iPhone marketing, not the carriers.
Carriers don’t do direct marketing, but they do lend their logo at the end of iPhone commercials, and they can de-emphasize iPhone displays in their stores. Someone above mentioned Androids were front and centre in a store and the staff were pushing them, while the iPhones were shuffled to a side aisle with non-Android phones.
Methinks you are mistaking advertising for marketing.
The telcos would become a utility, in effect: stable, boring, and worthwhile only for a safe dividend.
Whether to become a utility or not may not be a choice they get to make.
Not saying I agree with the assessment, but if having the iPhone is a “poisoned chalice”, not having it appears to be worse fate.
If Apple let the Carriers market the iPhone…
Well it aint going to happen.
AT&T has a few times..
So has sprint and Verizon.
But apple did at one point not allow AT&T to do any iPhone ads.
If this ever happens successfully across all of the carriers, there will be an antitrust suit that will make your head spin.
Which will fail before I get dizzy.
Don’t believe what you read in Forbes. The telcos do fine with the iPhone – over time, there is an upfront subsidy which they recoup over the life of the phone
The Forbes article is written by someone without a clue.
ALL post-paid phones have an upfront subsidy that’s recouped over the contract. But it’s well-known that iPhones have a higher subsidy than the others.
e.g. basic iPhone 4S is $649 unlocked from Apple. High-end Blackberries and Androids are $499-$549 unlocked. Yet all sell for $199 on 2-year contract.
So for every iPhone they sell instead of a high-end alternative, they lose out on $100 or more over the life of the contract (probably more; carrier margins on iPhones are probably smaller than competing smartphones). Of course, they might make it back in overage fees on text, voice, long distance etc, but they can’t forecast that in their financials.
You’re assuming that the telcos pay $649 per iPhone they subsidize. I could very easily see Apple giving a lower price to the telcos and a higher price for unlocked iPhones to discourage people from buying unlocked iPhones.
See in my original comment: “carrier margins on iPhones are probably smaller than competing smartphones”.
I *know* Apple sells to the carriers for less. Sake of argument, we’ll say $50 on the entry-level 4S, so the carrier “buys” from Apple at $599 instead of $649. But it’s likely the other cell phones are sold for even less, because they’re in a race for the bottom to entice the carrier to sell them, so they offer more margin. Say $100 off the unlocked price.
Telcos make big chunks of cash because the iPhone user consumes data more rapidly than any other phone.
See, the iPhone actually WORKS.
Even Google make a ton o’ loot from the iPhone.
And the 3 -year contract in Canada on a new iPhone 4S is $299.
They make that back in 3 months. Facts not BS please.
Check your own facts, Derek. Other than my last paragraph, my numbers were straight off the AT&T and Apple (US) websites. I got my own entry-level 16GB 4S on Canadian 3-year contract for $159, not $199, never mind $299. And they don’t “make it back” in 3 months, that assumes monthly fees all go to paying off the subsidy, of course they don’t, they cover actual service–service that would cost the same (or very little discount) if you brought an unlocked, fully-paid phone to use with them.
And for crap sake READ what I wrote, I covered both your and Bizlaw’s counterpoints in my first comment!
To your point, I wrote “Of course, they might make it back in overage fees on text, voice, long distance etc, but they can’t forecast that in their financials.”
I’m not saying they don’t make it up somehow, I’m explaining how at initial sale the iPhone CAN cost carriers more than other phones, as alleged in the article. THAT IS ALL. Apple does not generate such huge revenues by being overly generous to their suppliers or their partners.
“The Forbes article is written by someone without a clue.”
Or with an agenda.
The above post was written by someone without a clue, and one definately with an agenda.
I think the telcos make more money on iphones in the longer term, but they pay more subsidies initially. Its a good investment for them.
The telcos make money on iPhone sales, it’s just that they make it up in 2 years.
Telcos make plenty of money, particularly because iPhone owners use their phones for a lot of data, so the telcos can sell higher, more expensive data plans. Plus, they sell accessories, insurance, etc.
Punctuation dive’s when headlines aren’t proofed. 🙂
I had to read it four times, then decided to read the body of the article because I couldn’t make any sense of the title.
Punctuation seems correct: I understood it as “the aftershocks of the dive” or the dive’s aftershocks…
RadioShack sells iPhones; I’m confused.
http://www.radioshack.com/uc/index.jsp?page=researchLibraryArticle&articleUrl=../graphics/uc/rsk/USContent/HTML/pages/iphone.html&noBc=true
Not very many. Not enough.
Is it possible that Apple’s anger and chest beating over Android being a blatant rip-off of iPhone has been an encouragement to the wireless providers to adopt Android as an antidote to iPhone and it was Apple’s strategy all along. Yes, by all means, we want you to make Android your best defense against Apple. Why, because fundamentally (and here comes the technical term) Android as an idea sucks and it’s like quicksand for the carriers. Customers try Android, wind-up really disliking it and then give the iPhone a spin. Once they do their’s almost no going back. The carriers and manufacturers keep pinning their hopes on something that just reinforces the perception that the iPhone is better and drive even more users to iPhone. Ultimately this strategy has the potential of weakening the wireless carriers to potentially their death. Now imagine that Google was in on the strategy. I know tinfoil hat moment but imagine if they were?
Repeat…THERE IS NO MONEY IN THE ANDROID MARKET
Sorry abouts the caps but when will the analysts realise that the financials behind Android are about as safe as the vapourware dollars behind the multiple re-mortgaged housing market ~ mid 2000s. Buyers without sufficient funds facing inflation, lower wages or jobless and rapacious banks on their backs. What do they do first?….dump their cheap Android or lose their home?
It’s been pointed out many times that Apple users are likely better off.
Ok Maybe it’s not so simple but I would love to see those figures for contract defaults per platform, by the carriers.
Citing AT&T’s profit deterioration as a causality of selling more IPhones without noting the failed acquisition of T-Mobile is a serious omission of fact on this article. Was Android ever a serious serrel on AT&T? Why would this not affect Verizon also? This article smacks of collateral FUD.
That’s serious seller.
I expected more analysis from MDN. Riding the iPhone bandwagon may prove costly for Sprint in the short-term but it’s a sound business strategy in the long term. I, for one, switched to Sprint to enjoy its truly unlimited data offering. And I am not alone. As I found out, Sprint even offers much superior connectivity versus T-Mobile here in California & versus AT&T in Silicon Valley.
The telcos won’t permit the iPhone to not make money for them. If AT&T or Verizon were to drop the iPhone, claiming they didn’t make any money, their customers would dump them and switch to a telco which offered the iPhone (where possible for coverage).
People WANT the iPhone; they settle for Android because they can’t get an iPhone. Once they can choose either an iPhone or Android phone for the same basic price, Android loses (as the recent market share figures and Motorola sales figures show). As Android contracts expire, Android users move to iPhones.
Samsung’s commercials got one thing right: People line up for iPhones, and the one guy who is off his rocker has an Android. However, they forgot to show the extension cord he needs to keep his Android phone charged.
Towards the end of my billing cycle, AT&T bills me $US10 per Gigabyte for data overages.
The moment my billing cycle ends, my 4GB data limit is refreshed and any balance left on the Gigabyte overage disappears. It would seem that, AT&T is charging me ten-dollars regardless of whether I use all of that Gigabyte or not. Rinse and Repeat 50-million times each billing cycle and collect a nice chunk of change.
Lesson learned: If you pay for it, use all of it.
I just checked my last statement and sure enough they billed me $US10 for the Gigabyte overage even though I only used 164MB of the Gigabyte. Seems criminal to me.
Could be worse. They used to charge by the kilobyte. A coworker once had $20 overage fee for going 1 MB above his Blackberry’s 20 MB data plan.
In the 80’s Radio Shack used to be useful for tinkering. You could at one time buy various supplies such as small motors, transistors, switches, solar panels and other unique items for tinkering right off the shelf no special ordering required. The TRS-80 was a fun toy computer used by many in it’s day to tinker. It died and gradually so did all the other cool stuff. Now all I see there of interest is a bunch of ready made crap. That is why Radio Shack will die. Now, all the consumers that Radio Shack wanted go to Walmart or BestBuy. The technically adept now go elsewhere like Fry’s or TigerDirect.
Now, all that Radio Shack has is adapters, cords and ready made crap… and a 6′ USB cord found at Radio Shack for $20 can be had at Walmart for $6.88. Radio Shack is like an expensive graveyard.
Radio Shack needs to remember it’s roots.
Roots? Seriously?
What ails RadioShack is the lack of any business acumen whatsoever! At the turn of the century that company experienced one debacle after another. HR put hundreds of store managers on notice before demoting them to sales staff. They closed hundreds of stores because they were competing with one another.
Then the CEO resigns for padding his resume with bogus degrees. His replacement lasted a year before she resigned to take over Toys R Us.
These stores are a mess, plagued with inventory and logistic problems.
The problem isn’t their stock, it’s their board of directors and the lack of a chain of command.
The consumer softness mentioned in the article came from the crappy stuff they sell (i.e. generic products at atrociously high prices.)
I speak of the company as a consumer, while you speak of Radio Shack’s innards. When what they are presenting for sale no longer has value to the general public nor the tech geeks they used to cater to, who cares about Radio Shack’s innards?
If you were a consumer in the 80’s at Radio Shack, you would understand when I use the term “roots”. Knowing about Radio Shack’s internal issues does nothing for consumer perception which I believe is more critical in this case. (Consumers are they ones that give you the money.)
not the radioshack by my place. big section of components and they are even stocking arduino boards and books.
iPhone has displaced cameras, recorders, music players and phones, games consoles, to name a few.
What was Radio Shack selling? Oh yeah…
There’s always replacement batteries!
Oh yeah…
And they’re free with your battery of the month card! Yes, crappy, leaking alkaline batteries. Who’d a thunk it?
good point, Derek! People forget it’s much more than a mere phone or mobile web browser.
Data shows that ATT and Verizon sold more iPhones than Androids. Could it be that the return rate of Androids is very high during the test period whereby customers could return the Android phones if they were not satisfied?