iPhone still eating into AT&T's profits
Published: 30 January, 2009
As in its previous quarter, AT&T saw its flagship handset, the iPhone, boosting its sales and ARPU but cutting into its margins. The cellco added 1.9m iPhone accounts in Q4 (about 40% from other carriers), but net income overall fell 23% and the company was wary in its forecasts for the year. In comparison, Verizon Wireless said it sold one million of its BlackBerry Storm flagship in the period since launch on November 21, despite reports of software glitches.
The results from the big two US carriers were solid, and show telcos performing better than most US corporations in the recession, especially on the wireless side. Like Verizon, AT&T saw a deep erosion in traditional phone call business with voice revenue down 10.3% year-on-year, and in AT&T's case, this could help drive earnings for the full year well short of the current Wall Street estimate of $2.76 per share. Analysts are now estimating $2.40 for the year.
In Q4, AT&T reported net profit of $2.4bn, or 41 cents a share, down from $3.1bn, or 51 cents a share, in the year-ago quarter. Revenue rose 2.4% to $31.4bn and results were more or less on analyst target. The main factors behind the lower profit figure were merger-related expenses, severance costs and upfront subsidies for the iPhone, as well as deep downturn in local and long distance businesses. AT&T estimates iPhone subsidies take five cents a share off adjusted Q4 earnings but expects the handset to generate healthy profit in the longer run because of the higher monthly spend on data of iPhone users in general.
In the wireless division, revenue expanded 13.5% to $11.52bn, as AT&T ended the quarter with 77m mobile customers, slightly behind Verizon's 80m following the acquisition of Alltel. Largely iPhone driven was a 3.9% rise in postpaid ARPU, now $59.59 a month, up 60 cents on Q3. Churn was slightly down at 1.6%.
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