Verizon Wireless will suffer from a reduction in profit margin for the fourth quarter of 2011, due in part to record sales of the Apple iPhone, according to Fran Shammo, CFO of parent Verizon Communications. Speaking at a Citigroup investor conference this week, the executive said the operator sold 4.2 million iPhones in the final three months of 2011. This was more than double the number of iPhones Verizon Wireless activated in the previous quarter and takes it “extremely close” to the company’s 11 million target for the year.
Subsidies for iPhone handsets when customers sign-up for service contracts increase costs for operators, pressuring margins. “Given the volume, we’re probably going to see a 500 to 600 basis point decrease in wireless margins from the fourth quarter from where we exited the third quarter, which was an all-time high of almost 48 percent,” Shammo said.
Verizon Wireless started offering the iPhone in February 2011, after AT&T’s exclusive rights to sell the device in the US expired. As well as the increased sales, Shammo said Verizon Wireless had a backlog of 120,000 iPhone orders by the end of 2011, suggesting that demand is outstripping supply.
Following Shammo's comments, Verizon shares fell 1.3 percent to US$39.21 at the close of trading in New York yesterday, according to Bloomberg.
Verizon is due to report its Q4 results on January 24th.