Verizon Can Reverse Sliding Profits with Successful Droid
Verizon reported increased revenue, but lower profit for its most recent quarterly results. Layoffs of 4,000 employees helped to offset expenses and one-time costs incurred by the acquisition of Alltel Corp. If the Android-based Droid smart phone can live up to its pre-release hype, Verizon might be able to turn things around and increase profits next quarter.
Looking at one set of numbers, Verizon had net income of 41 cents per share, a more than 30 percent drop from the 66 cents per share earned in this same quarter last year. However, moving some numbers around and doing some accounting magic-- like excluding costs associated with purchasing Alltel-Verizon says it would have made 60 cents per share which is higher than the analyst estimate of 59 cents.
Bottom line: profits are down. Even the best case scenario painted by Verizon shows a decline of 10 percent. At the same time revenue was up a little over 10 percent, mostly as a result of the Alltel purchase.
The land-line phone business has continued to dwindle while the wireless phone business has been stronger and essentially accounts for how Verizon was able to do as well as it has. Verizon grew the wireless business to 89 million subscribers with the addition of 1.2 million new users.
The issue of sales volume and revenue versus profit has been a recurring theme lately. Acer was able to knock Dell out of the #2 spot for global PC market share, but it accomplished the goal driven by sales of low-end netbooks. Dell has some netbooks in its portfolio, but chose to focus on profit margin rather than sales volume. It lost them second place bragging rights, but with a successful Windows 7 and some loosening of the corporate purse strings for technology refreshes, Dell could have a very successful 2010.
Another example of volume versus profit is Nokia and Apple. Nokia holds a dominant share of the smart phone, and the larger mobile handset markets. Apple's iPhone, on the other hand, is the number two smart phone platform in the United States, but holds very little of the global market share. However, because the iPhone is a premium device with higher profit margins, Apple is actually neck and neck with Nokia in terms of profits in the smart phone arena.
Verizon's number one wireless competitor, AT&T, has a win-win situation going on right now with the iPhone. AT&T doesn't have to trade volume for profit because it has exclusive rights to the iPhone which is both popular and profitable. AT&T outpaced Verizon last quarter, adding 2 million new subscribers.
Both AT&T and Verizon's fortunes could change though when the Droid hits the street. While the Blackberry Storm, the Palm Pre, and even the Motorola Cliq have been hyped as iPhone killers, preliminary assessments of Verizon's Android-based Droid handset suggest that it may be the first real competition for the iPhone.
Verizon's ‘I Don't' ad campaign seems to indicate some bad blood with Apple, but Verizon has indicated that the door is still open and analysts have suggested that Apple could double iPhone sales by ending its exclusivity with AT&T.
With or without the iPhone though, Verizon seems to be doing OK and trending in the right direction to keep its position as the number one wireless provider in the U.S.
Tony Bradley is an information security and unified communications expert with more than a decade of enterprise IT experience. He tweets as @PCSecurityNews and provides tips, advice and reviews on information security and unified communications technologies on his site at tonybradley.com.
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