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Carriers To Take EPS Hit With Arrival Of Apple iPhone 5

This article is more than 10 years old.

For the mobile carriers, the arrival of a new Apple iPhone is a good news/bad news situation.

On the one hand, the debut of the iPhone 5 will almost certainly drive more people to visit AT&T, Verizon Wireless and Sprint retail stores in the coming weeks.

On the other hand, selling more iPhones will hurt reported profits, as the carriers absorb the hit from the substantial subsidy they pay Apple for every phone sold.

Baird analyst William Power laid out the situation in a research note Thursday morning. For Apple, he repeats his Outperform rating, upping his target price to $750, from $740. For the December quarter, he now expects the company to sell 24.4 million phones in the quarter, up from a previous forecast of 21.2 million units. His new profit forecast for the quarter jumps to $9.01 a share from $8.05.

But take a look at how the increased iPhone sales will ding the carriers that will provide service for the phones:

  • For AT&T, Power now sees Q3 profits of 60 cents a share, down from 67 cents, to reflect higher iPhone 5 sales. "Our consumer surveys conducted in early August indicated that there is significant pent-up demand for the iPhone and that many subscribers were sitting on their upgrade eligibility in anticipation of the newest iPhone," he writes. "We believe that AT&T is especially likely to experience rapid upgrading due to its legacy base of iPhone subscribers."
  • For Verizon, he likewise cuts his forecast to 60 cents, from 67 cents, while lifting his forecast for post-paid subscriber net adds to 1.1 million from 701,135. He thinks Verizon will take some market share in the quarter.
  • For Sprint, he trims his Q3 EBITDA estimate to $1.1 billion, from $1.2 billion, again reflecting higher iPhone sales. He now sees the company reporting a los of 63 cents a share for the quarter; his previous forecast was a loss of 58 cents.