|Verizon's iPhone Sales Numbers: Is Apple Too Fancy for Its Own Good?|
By Michael Comeau OCT 18, 2013 9:35 AM
Verizon can't keep up with iPhone 5S demand as rumors swirl around the fate of the 5C model.
Yesterday, Apple (NASDAQ:AAPL) shareholders got the single most interesting piece of news since the company's announcement that it sold a whopping 9 million iPhone 5S and 5C models on their opening weekend.
On its third-quarter earnings call, wireless carrier Verizon (NYSE:VZ) said it couldn't keep up with demand for the iPhone 5S, leaving a lot of customers empty-handed.
While I'm sure that Verizon was frustrated by the situation, we must remember that historically, product shortages can be quite bullish.
For example, the hard drive shortage that resulted from the tragic 2011 Thailand floods drove price increases for Western Digital (NYSE:WDC) and Seagate (NYSE:STX). Those stocks have performed astoundingly well despite anemic demand for PCs.
Additionally, during the last big gaming-stock boom from 2006-2008, the best-performing stocks were Activision Blizzard (ATVI:NASDAQ) and Nintendo (OTCMKTS:NTDOY), both of which were experiencing regular shortages of their hottest products. In Activision's case, that was Guitar Hero and in Nintendo's, the Wii console.
We've also seen this happen in the semiconductor market. In 2006-2007, when AMD (NYSE:AMD) gained technical advantages over Intel (NASDAQ:INTC) in server and desktop processors, it saw big supply shortages -- and the stock eventually went over $40.
At the end of the day, whether you're running a powerful multinational consumer-electronics powerhouse or a hot dog stand, if you're selling everything you can make, you're doing something right.
And from a purely financial perspective, remember that Apple has already indicated that its September quarter revenues and gross margins would come in at the high end of guidance, and slightly above consensus.
But It Gets Tricky
Interestingly enough, Verizon's iPhone activations were actually flat quarter-over-quarter. You'd think they'd be up on account of the new iPhone models, right?
Not necessarily. The 5S and 5C launched on September 20, which is fairly late in the quarter. Additionally, Verizon said that the lower-end 5C did not sell as well as expected. So if Verizon had more 5S units and fewer 5Cs, its iPhone numbers would likely have been much better.
Ultimately, it's a wash -- it's hard to argue either way. We'll have to see what AT&T (NYSE:T) says on its earnings report next week to get more color, but for now, Verizon's iPhone numbers don't give much ammunition to the bulls or bears.
The Branding Factor
Beyond Verizon's comments, there have been many recent news reports indicating that the 5C is not a big hit, at least relative to the 5S. Analysis from Consumer Intelligence Research Partners indicates that the 5S has been outselling the 5C in the US by a more than 2:1 ratio. And the rumor mill has been busy pushing out the idea that Apple has cut back 5C orders with its manufacturing partners.
Now why could this be happening? I emphasize the word could because there isn't much in the way of initial news here. For all we know, the 5C could be doing just fine internationally.
But Apple may be finding itself in an interesting situation: Customers may be opting for the 5S because of its higher price, not in spite of it.
The 5C, while less expensive, is not a cheap phone. It's plastic, but it feels very, very nice in the hand and iOS 7 offers a simply phenomenal interface.
But at the end of the day, a great many people buy Apple products because of the idea that they're buying the best.
A shortage in the 5S as the 5C piles up on shelves may be evidence of that.
Apple may be just too fancy to compete in the lower-priced end of the smartphone market.
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