Apr 26 2012
Apple CEO defensive over iPhone impact on operator earnings
Tim Cook lists coveted handset’s ‘distinct advantages’ as Apple reports another record set of quarterly results.
Apple chief executive Tim Cook took time to outline the benefits to carriers of stocking the iPhone during the company’s quarterly investor call late Tuesday, amid concerns that high smartphone subsidies are eroding mobile operators’ margins.
“iPhone has some distinct advantages for the carriers over competing smartphones,” he insisted.
First of all, Cook claimed the subsidy that operators offer to prospective iPhone customers is “not that large relative to the sum of monthly payments [they receive] across a 24-month contract period”. He also claimed executives from a number of operators have told him that the churn rate from iPhone customers “is the lowest of any phone they carry”, resulting in a positive effect on their overall retention costs.
Furthermore, Cook championed the efforts of Apple engineers in making the iPhone’s data consumption as efficient as possible; he also highlighted that its desirability encourages feature phone users to upgrade to a smartphone.
“All of these factors are missed in this general discussion of subsidy,” he said.
His comments come at a time when more and more operators are wielding subsidised iPhones and other smartphones in a bid to woo consumers; however, the upfront cost of putting a smartphone in the hands of an end user is higher than with lower-spec devices.
This was exemplified in recent financial results published by U.S. telco giants AT&T and Verizon.
In the seasonally strong fourth quarter of 2011, when both operators reported a positive reaction to the then newly-launched iPhone 4S, wireless operating expenses reached $14.16 billion and $13.92 billion respectively, up from $11.71 billion and $11.29 billion respectively a year earlier. AT&T’s wireless operating margin narrowed to 15.2% from 22.9%, while Verizon’s shrank to 23.7% from 30.1%.
By comparison, in the first quarter of 2012, after the post-Christmas smartphone hype had settled down, AT&T’s mobile arm reported a 27.2% operating margin and operating expenses of $11.75 billion, broadly in line with the same figures for Q1 2011. Verizon Wireless meanwhile reported a healthier operating margin of 28.6%, while operating expenses edged down sequentially to $13.06 billion.
However, Cook suggested that operators are quite happy to tolerate the cost of subsidising his company’s devices.
“The vast majority of carriers want to provide what their customers want to buy,” he said.
According to Apple’s latest financial results, customers are still decidedly keen on iPhone.
For its fiscal second quarter ended 31 March, the U.S.-based electronics giant shipped a 35.1 million iPhones, up 88% from 18.7 million in Q2 2011. iPad shipments grew 151% on-year to 11.8 million from 4.7 million.
Apple also dispelled recent doubts over the company’s ability to maintain its current growth trajectory.
Net profit surged 94% to $11.6 billion, while revenue rose 59% to $39.2 billion.
“We remain very confident in our strategy,” said Apple CFO Peter Oppenheimer, on the conference call.
Looking forward, he said Apple expects to report revenue of around $34 billion for the third quarter ending June 2012, compared to $28.6 billion in Q3 2011.


The leak comes via well-regarded Vietnamese site Tinhte, which previously revealed the Samsung Galaxy Tab and parts from the new iPad. It reveals footage of the new device for the first time
Its 720 x1184 4.6-inch screen is expected to have a slightly lower resolution than the iPhone 4S, but on a bigger 4.6inch screen compared to the iPhone¿s 3.5inch
