“Because Apple’s stock is down, financial news outlets are on the prowl for an explanation. There is no good explanation, but the explanation that seems to have stuck is the risk of carriers cutting subsidies,” Jeff Borack writes for Seeking Alpha.
MacDailyNews Take: It’s not really and “explanation” per se, it’s more like the bullshit du jour.
“Carriers might cut subsidies, but Apple is not at risk,” Borack writes. “Let’s assume that carriers worldwide cut subsidies across the board by $30… except for Apple and Samsung, smartphone manufacturers are either not profitable or marginally so. If every manufacturer made $30 less per smartphone, Apple would barely notice and Samsung would survive, but 47% of manufacturers would be wiped out. Apple will show lower profits for perhaps a year, but it should more than make up for lower margins with higher market share, increasing net profit.”
Borack writes, “Reduced subsidies are a threat to every smartphone manufacturer except Apple. Furthermore, Apple stands to benefit more from the possibility of increased subsidization than any other market player.”
Read more in the full article here.
It’s easy, there’s a big correction because there was a prolonged rally.
Exactly.
But rally and correction are because of perceptions not based on any fact. Any time a stock soars the market feels a need for a correction because it feels illogical for a stock to all of a sudden do so well (irrational exhuberance, anyone). Stock “correct” because of a belief that it’s too high too fast, not because there is any data to suggest otherwise. Apple is unique in that even after the huge run up its stock is still undervalued based on earnings, revenue, etc. but the perception has been that there is only so high it could go when in reality those limits are artificial man made ones because human nature says so. AAPL may never get to what it should based on metrics because it could dwarf all else out there and not feel right.
If the market wants a correction, look at Amazon. Their fundamentals are way out of line with their valuation.
Imagine if the carriers decided to stop subsidizing iPhones. What would be Apple’s incentive to continue working with the existing carriers instead of creating their own hybrid network (4G/WiFi) and just locking the carriers out of the loop completely? I’ll be the carriers know this and will happily pay subsidies if it keeps Apple out of the carrier’s ballpark…
The unbelievably huge cost of building out a country-wide infrastructure to support that hybrid 4G/WiFi network for which they would lose tens of billions due to competition cutting profits to the bone. No way Apple builds its own network. If they could buy large blocks of existing capacity for low rates to resell as the “Apple Network” they would, but where is the incentive for the carriers to give away that lucrative market?
If multiple carriers drop or reduce subsidies, the DoJ will almost certainly treat that as illegal collusion.
Let’s just get this over with now. Where do I sign up for the iPhone on the new Apple Network? Kick AT&T, Verizon and all the others to the curb.
Ok, Mr. Carrier, you’re not going to subsidize my iPhone? If not, why would I sign a contract with you? OK, I’ll just pay the $599 up front and go month to month. Oh, and BTW, since you don’t have a subsidy to recoup you better drop your rates by $25 or so per month or I’ll go elsewhere, because I don’t have a contract that ties my phone to your service, remember?
Wait!!! This is how it should have been to begin with! Duh!
On most US carriers, month-to-month is the same price as the contract.
The carriers rape customers who have paid-in-full phones. That’s why folks upgrade and get on the treadmill again.
Because one jackass mentioned the possibility that carriers were losing money from carrying the iPhone, this nonsense gets circulated around forever. Why is Apple down? Because of POSSIBLE loss of subsidies. Jeez. As if it were going to affect only the iPhone which has the highest customer demand going for it. If carriers are suffering that badly from carrying the iPhone, then all they’d have to do is raise their monthly rates to make up the loss.
I find it hard to believe that any shareholder would toss Apple stock on the possibility of the iPhone losing subsidies. It would probably take a couple of years for something like that to go into effect due to advance contracts. I’m sure those carriers have some contract with Apple stating how many iPhones they’ll need in advance. Loss of subsidies wouldn’t happen overnight. I’d feel sorry for the first carrier that dropped the iPhone because they’d definitely be hurting when customers started defecting. Loss of iPhone subsidies? BS. It isn’t going to happen.
In the “Where Are They Now?” department:
(Then) Palm CEO Ed Colligan’s response to a question about the possibility of Apple releasing a mobile phone.
“Responding to questions from New York Times correspondent John Markoff … Thursday morning, Colligan laughed off the idea that any company — including the wildly popular Apple Computer — could easily win customers in the finicky smart-phone sector.
“We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.'”
http://www.palminfocenter.com/news/9110/colligan-laughs-off-iphone-competition/
i would love to see the carrier that stops selling i phones over a snit over subsidies the other carriers would love to take up the slack (can you spell churn?)
which carrier will be first to put their foot down ? (god this room got quieter than an At&t dropped call)