Verizon Could Owe Apple Up To $14 Billion In Unsold iPhones
Verizon Wireless could end up owing Apple as much as $14 billion in purchase commitments if the carrier fails to sell a certain number of iPhones. This figure is estimated based on the current iPhone sales and the amount Verizon committed to sell in 2013.
Under a multiyear deal signed with Apple in 2010, Verizon Wireless is obligated to buy $23.5 billion worth of iPhones in 2013 alone, according to Craig Moffett, a telecommunications analyst who left Sanford C. Bernstein & Co. earlier this year to start his own research firm. Since the purchase commitment is more than twice what Verizon Wireless sold in 2012, the company may have a shortfall of $12 billion to $14 billion, worth $4 to $5 per share, Moffett said in the report.
The report suggests sluggish demand for the iPhone that could bring up this hefty bill for Verizon and even other carriers. Apple often makes wireless providers commit to a certain amount of units over the years which has aggravated some carriers. Estimates peg Apple at a 22 percent decline in net income in the third quarter.
However, Moffett believes Apple may simply ignore these commitments since other carriers around the world are in similar situations.
It is likely that Apple would be reluctant to simply ignore these commitments, since many other carriers around the world are probably in a similar situation, and a simple amnesty would set an unwanted precedent,” Moffett wrote. “It is therefore unrealistic to think that Apple won’t extract some consideration for renegotiating these shortfalls.”
Both Apple and Verizon declined to comment.
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