Make hay while the sun shines is what best describes
AT&T
's (
T
) current strategy on the smartphone market. Despite the present
economic upheaval and loss of exclusivity on
Apple
's (
AAPL
) iPhone sales in February this year, the company continues to
deliver jaw-dropping smartphone sales figures, thanks to the iPhone
frenzy.
AT&T recently projected smartphone sales to break the
historical mark of 6.1 million and set new records in its ongoing
fourth quarter. The company has already sold approximately 6
million smartphone during the last two months and with the gift
giving season still on, a new quarterly high seems quite
likely.
Given the launch of iPhone 4S on October 7, simultaneously by
three mega carriers including
Sprint
(
S
) and
Verizon
(
VZ
), AT&T hit bull's eye with more than 200,000 preorders for
iPhone 4S within the first 12 hours and over one million iPhone 4S
sales during the first six days of launch.
Smartphone market has grown leaps and bounds over the past years
with nearly 87 million users as of September 2011. On an annualized
basis, smartphones registered an astonishing growth over 70% in
2010. Latest surveys suggest that smartphones own approximately 37%
of the mobile market share (as of September 2011) and this figure
should cross 40% in 2011.
Catching up with the smartphone fervor, iPhone contributed
nearly 40% of smartphone sales in the U.S. during the third
quarter, coming a close second to
Google
's (
GOOG
) Android market share of 43%.
Carrier wise, iPhone accounted for approximately 56% of the
total smartphone sales (approximately 4.8 million) of AT&T
followed by 36% of the total sales (approximately 5.6 million
smartphones) on Verizon's network.
Going by the iPhone track record, we believe AT&T is playing
a safe bet on the current momentum of this iconic phone. We also
expect the iPhone to reap higher revenues for AT&T going
forward. But the real question is - how far AT&T can bank on
the iPhone? We wonder if this is the right time for the company to
shift its focus on the emerging market players in the smartphone
arena.
iPhone has definitely carved a niche in the market and
positioned AT&T ahead of its rival with higher margin
performance. But given the current economic backdrop where consumer
are increasingly shifting focus on cost effective data plans and
smartphones, it remains to be seen whether "Apple" will
continue to taste sweet for AT&T?
Though iPhones have enjoyed a strong momentum, high marketing or
subsidy costs associated with the product are restricting
AT&T's earnings. The carrier is currently paying a hefty
subsidy of approximately $300 per phone to Apple, which is dilutive
to its earnings. Additionally, AT&T already runs the risk of
competition from the likes of Verizon and Sprint given the loss of
exclusive marketing rights of iPhone.
The emergence of the Android operating system as the latest rage
has given it the top position in terms of market penetration,
surpassing the most commonly used operating system,
Nokia
's (
NOK
) Symbian. Accordingly, it has also eaten into the market share of
both iPhone and
Research in Motion
's (
RIM
) Blackberry with high-end smartphones from another leading
manufacturer - Samsung.
We believe all these factors will play a determining factor in
iPhone's long-term growth and aid AT&T in making structural
changes in terms of its smartphone offering with more cost
effective plans.
We are maintaining our long-term Neutral recommendation on the
stock with the Zacks #3 (Hold) Rank.
APPLE INC (
AAPL
): Free Stock Analysis Report
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
NOKIA CP-ADR A (
NOK
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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