“People close to the companies tell TheStreet.com that AT&T is paying Apple a bounty of between $150 and $200 per phone — plus $9 a month per phone over the life of the typical two-year customer contract… The figures show Apple is getting an unprecedented windfall on the sale of each new iPhone. Bulls on the stock believe the nifty terms — which haven’t been baked into Wall Street’s earnings estimates for Apple — could push Apple’s highflying stock into the stratosphere,” Scott Moritz reports for TheStreet.com.
“‘This is unheard of,’ says one money manager who is long Apple. ‘No one has this plugged this into their models.’ Wall Street knew Apple was getting a good deal, but it didn’t know just how good it was,” Moritz reports. “‘At $145, Apple is valued at about 25 times forward EPS,’ says the money manager. But with these sweeter-than-expected terms, ‘you could easily see it as a stock worth $200.'”
“Verizon Wireless — co-owned by Verizon and Vodafone — was the first company approached by Apple. But Verizon nixed the deal,” Moritz reports. “It was thought at the time that Verizon didn’t like the financial terms, but sources at the company now confirm that the deal was killed even before the terms were discussed. It was Apple’s unbending position on iPhone distribution and the applications that would run on the phone that brought the talks to a quick end, these people say.”
More in the full article here.
BUY AAPL, SELL T. That simple.
The $200 club vs. the Laura Goldman club…greenback weapons ready?
Pretty lonely out there in MDN land today.
wow This market action plus new apple products plus plus plus
man you have got to be in awe of Apple and Steve right now
And I really think this is just the first round go go !!!!!!!
Now I see why Verizon may not have seen the light partnering with Apple Inc. on the iPhone.
It is as if Apple is being paid as a wireless agent for each iPhone sold. As a former AT&T wireless agent, the numbers listed here are not out of line for typical agent compensation. I doubt the $9 a month except on the highest of rate plans. I think Apple agreed to be basically an agent for AT&T. They receive a commission and residual on each iPhone.
If this deal is true, it would explain why AT&T agents are not selling the iPhone. AT&T would not want to pay a wireless agent to sell a “cash and carry” item just to turn around and pay Apple the same amount again.
The agent business model is heavily based on the residual monthly payment. It adds up quickly. If this is true Apple will see substantial income from the residual.
Why would AT&T have agreed to this? Because Apple could have been a Mobile Virtual Network Operator and sold the phone and the service themselves.
… will aapl’s earnings for this last quarter reflect any of the financial gain from the iPhone, since it went on sale just a couple of days before the end of the quarterly period? It might look great in the coming quarters, especially this income stream, but I’m thinking little of it will matter for this upcoming earnings report, thus caution may be in order. Sometimes crazy Jim is wrong, but lots of times he’s right. I’m thinking of jumping out after-hours Tuesday, and watching closely for the opportunity to jump right back in in a few days after the price pullback should earnings look more “normal.” It just feels like too many speculators are expecting fireworks because of the iPhone so soon… and as one of my old stock market professors used to say, watch what the herd does, and do the opposite, and you’ll make money.
“It was thought at the time that Verizon didn’t like the financial terms, but…It was Apple’s unbending position on iPhone distribution and the applications that would run on the phone that brought the talks to a quick end..”
Considering how Verizon cripples their phones and nickle-n-dimes customers for using every little feature (and I know because I’m a Verizon customer) this is very believable.
However…count me dubious about these “reported details” about AT&T paying Apple. While it wouldn’t surprise me at all to find out that AT&T is paying Apple something, I just can’t see Apple going for flat fees. IMO, Apple would want a percentage of each iPhone users plan.
Besides, I don’t think Apple would have brought these payment demands to the table because their deal breaker was retainng control of “iPhone distribution and the applications.”
Also, I doubt AT&T would have offered up such ridiculouly generous terms, unless they were really desperate and wanted to make certain they got the iPhone.
This article smells like those absurd iPod/iPhone component price breakdowns that reportedly show how Apple is gouging their customers with preposterous profit percentages.
Hmmmm, I don’t think that AT&T is all that smart. I think they just saw this as a way to steal customers from the other telcos. Period. It was a zero cost to them over all and they get new customers.
Upper management usually seems pretty thick skulled on these type things. They go for the obvious near term money and get their bonuses and then leave when the company starts down hill.
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JMHO
en
If this is true, profit margin per phone adds up to 70-75% which seems unusual for Apple. They could have sticked with 50% and have sold at a cheaper price. Seeing your reactions thus far, I reckon you are not solely customers but also investors. I am both too, so I could not care less. AAPL is funding my appetite for gadgets these days.
You are all forgetting that it wasn’t AT&T… it was Cingular…. 24 months ago, Cingular was thinking in very different terms than they are today.
Could be true, could be a hoax.
If it was true, it would be crazy.
Still, Apple may actually be worth the money AT&T is paying them – the little marketing-stunt on the 29th boosted and cemented a good portion of their subscriber-base into “good” contracts, and the free, positive publicity is priceless anyway.
It was a risk that took some balls to take – but currently, it looks like a very positive outcome for both AT&T and AAPL.
I think, for the Christmas-season, they’ll have to charter extra container-ships to get the order-backlog of iPhones into the shops in US and Europe.
But a 200$? It would scratch at the 175b market cap line. That’s crazy. They produce just luxuries and recreational stuff. But then, most of the industry does, too….
Kind of sad if true.
That $200 that AT&T is paying would be applied, in a less Jobsian-centered, give-me-ALL-the-money model, to actually subsidize the cost of the phone (since we’re getting locked into a contract with AT&T anyway).
I’d sure rather have iPhone prices that are $200 lower than the satisfaction of gloating at how much richer Apple is going to get. Doesn’t make me any richer.
It also helps explain why AT&T continues to bill, presumably with Apple’s consent, so much like a vicious loanshark, with hidden fees, monthly payment in advance, full-minute billing, extortionate rates for overage, and the like. Apple delivers us captive to AT&T, for a high “bounty,” and AT&T then does its level best to skin us alive.
So how is any of this good news?
The U.S. cell phone industry is so screwed up it hurts my head to think about it. It’s not inspiring to see Apple lining up with the other ripoff artists, instead of sticking to making things that are so insanely great they can change the world.
Because AT&T’s network and billing practices are not insanely great, and the more I find out about Apple’s financial complicity in the bilking, the angrier I get.
Apple will probably only achieve such high margins on the first iteration of the iPhone and profitability will probably settle down to a more normal 18-22% range as the product range matures.
When/If Apple gets to around 45 million iPhone units/year (2009 is my guess), the effect will be about $19 billion in sales, and around $3.8 billion in gross profit.
With all of Apple’s other business lines, Apple may be running at around $47 billion in sales yielding a net profit of about $4.9 billion.
Chuck in an annualised $5.4 billion in network commissions, which are almost pure profit and Apple will be making around $10 billion in profit.
It’s not greedy, it’s just having the hot product at the right time. Given that so many people here are such strident supporters of the free market, it would seem hypocritical to support the idea that Apple should cut its prices of its new toy; the company obviously has plans and iPhone has obviously been priced to support those plans going forward.
When the armchair CEOs who post here have rebuilt a company from a CPR position over ten years including rebuilding its market cap, they’ll have a right to have an opinion; until then, I would say that we can all kiss SPJ’s creamy white ass, because he knows the playbook he’s using and we don’t.
Apple computers announced today the development of a computer chip that can be implanted into a woman’s breast and play music. The i-tit will cost £399.00 and is regarded as a major breakthrough as women are always moaning that men usually just stare at their tits and never listen to them.
well rooibosh, I for one have had many a stares at my tits, (which are rather impressive) I have never expected a man to listen. To do that you need to shut up first
HUCK
Be thanking Steve and Apple for sticking to their guns.
You are a moron if you don’t think this turns out better for the consumer (you and me). This was a deal with the devil on our behalf – be grateful – it could have been much, much worse!
Keep your stupefied verizon phone, mine’s going under the car tire as soon as I get my iPhone!
Verizon is just as bad. Every time you touch your plan you get reset to 2 years. They all lock you in and the only way to get out is to buy out the remainder of the contract. Even one of those add a line deals has to be bought out. Eventually the bar will be raised because they’re always trying to out do each other. I think Alltell is leading the charge in this. Having a home phone used to be quite a bit more expensive. Hell, it used to be you couldn’t buy a phone anywhere and the phone companies would charge you to use one of theirs for an arm and a leg. Now you can get one for 10 bucks.
OK, say Apple is doing very nicely out of iPhone.
All I can say is that I would rather Apple be the custodian of that wealth than any other organisation I can think of.
Just imagine the R&D opportunities that will open up for them! Tis could be the start of Apple being far mightier than Microsoft ever was. And the beneficiaries will be all of us this time, not just ‘them’, those blinkered, self serving, rip-off merchants at Redmond…
Thanks for the interesting and informative post. That’s definitely what I’ve been looking for.