Apple gets downgraded: Worried about subsidy cuts?

by Chris on April 10, 2012

An Apple analyst cut his rating on Apple stock yesterday.  I thought the argument was actually pretty fair, and certainly plausible as far as short term effects on the stock go.

He’s basically arguing that AT&T will change hardware upgrade policies, which will cause Apple to fall $1 billion short on Q3 numbers.  If he’s right, the stock will probably get hurt.

I wrote about it over at in this post. I’m always interested in your comments here or over there.
Separately, I hosted about 18 people at my house for Easter.  A whole pile of relatives from my wife’s side of the family.  One of her cousins, who is 18, has given up her BlackBerry in favour of an iPhone 4s.  So, naturally I asked a few questions about the move.  Here is a summary of her main comments:

  • She was the first of her friends to make this move.  The rest are all on BB and are all users of BBM.  She says they all hate her for this (jokingly).
  • She’s texting now instead of using BBM.  Everyone of her friends has WhatsApp, but nobody uses it.
  • She made the switch, according to her, because of better apps and Siri.  But I scanned the phone and she only had the Facebook app, Twitter, and Instagram.  The first two work well on BlackBerry, so I don’t buy her reasoning.  Yet, that’s what she said.  So it’s the perception that matters, and it proves RIM needs to deliver more apps.
  • She hates the battery life on the 4S compared to her old BlackBerry.  She brings her charger with her to friends’ houses.
  • She’s OK with the touch screen keyboard now.  Initially it was annoying.  Not so much anymore.
  • The browser was also a big point for her … she said her BB browser “sucked”.  Can’t argue there.  She was on a 9700 running OS 6 previously.  The browser only became decent (in my view) on the 9900 running BB7.

Anyway, that’s the take of a teenager who switched to Apple.

Matt Miller April 10, 2012 at 12:40 pm

It’s an interesting argument that exposes a flaw in iPhones – that I’m currently experiencing. I have an iPhone 3GS that I got right when it came out. I’m eligible for an upgrade, but I’ve decided to wait until the next iPhone model comes out (hopefully in a few months). The problem I’m having is that my battery life is horrible and the phone processor is way too slow for the current version of iOS. I was very happy with the phone, but now the battery is on its last legs and the OS does so much more in the background that my experience is poor. Also, I have a theory that many app developers test only on newer hardware. Because iOS automatically terminates apps that take too long to load and because developers test for newer (faster) iPhone models, many apps take a few attempts before they start and run. For example, the twitter app will crash the first or second time I open it, but then it runs fine.

Anyway, that’s probably too much information to get to the point that requiring a three year contract will cause lots of people to have three year old phones, which could create bad user experience.

Perhaps the terms of ATT’s and Apple’s contract allows ATT some flexibility in offering the “full discount” price such that they could separate the end of the 2yr contract from the beginning of the “full discount” price (e.g., offer the partially discounted rate for an extra 6 months).

ljp April 14, 2012 at 12:46 pm

The carriers did change the subsidies for BlackBerry 7 (9900) and some Android phones, placing them at $299 which likely led to some of the increase in iPhones sold last year. But I think it would take AT&T and Verizon working in concert to either raise the contract price or to try to lower the total price they’re paying.

I do think the carriers subsidizing the most popular and costly device to the levels of the competition is rather destructive to them but I believe the carriers envision an end-game where they can turn the tables on the consumers. Once the carriers get all the customers on LTE, which opens up the ability to charge customers for a much wider array of services, they might start to challenge Apple but I don’t see it happening before then.

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