Verizon vs Apple in iPhone purchase commitments
Just a few days ago we discussed how signs were promising for the iPhone 5S and 6 according to latest quarterly sales estimates. These estimates showed that despite concerns over a slowdown in top-end global smartphone sales, iPhone sales were still showing growth. However, it is now being reported that sales numbers suggest Apple’s iPhone may not be able to justify the huge purchase commitments demanded from giant carrier Verizon.
Verizon had to involve itself in a tough contract with Apple in order to be able to offer the iPhone. The contract was a multibillion-dollar commitment over multi-years, but it seems that Verizon is struggling to sell as many iPhones as it anticipated, according to Corporate parents Vodafone Group.
This means that Verizon has swelling purchase commitments and a shortfall in sales could invoke a contract penalty of some kind. Even more significantly shortfalls could also have an effect on its contract negotiations with Apple in the future. The terms of Verizon’s deal with Apple have not been disclosed, but a footnote in filings about commitments for purchasing equipment has been noted by Moffett Research.
Verizon reported at the end of 2009 that it had a commitment of around $100 million for 2011 to 2013. When the carrier signed a deal with Apple late in 2010, the same purchase commitment soared to $45 billion. Other deals that were made will have added to the vast increase, but the volume commitments to Apple are likely to have been a major reason for this jump.
However, iPhone sales have not lived up to Verizon’s commitment and shortfalls have rolled over into 2013 so that purchases of $23.5 billion are now required. The problem with this is that the Verizon’s total purchases of iPhones for 2011 and 2012 amounted to around $16.5 billion, so this target seems unreachable.
It seems likely that the popularity of Android smartphones is one of the reasons why Verizon may not have sold as many iPhones as it expected, and this has also come at a time when Apple has faced a certain amount of criticism that the most recent iPhones failed to live up to expectations.
Yesterday we discussed price wars between Apple, Samsung and Motorola and it’s evident that price is playing an increasingly important part in manufacturers attempts to increase sales. However, it may be that Verizon will be able to use the fact that it has achieved lower iPhone sales than expected, to negotiate smaller contracts with Apple in the next few years. Another possibility is that Verizon could ask for lower up front prices from Apple so that subsidies extended to consumers for the iPhone could be reduced.
It looks like intriguing times ahead for iPhone negotiations between Apple and Verizon, and it will be interesting to see how this pans out. Tell us what you think about this Verizon vs. Apple news by sending us your comments.