Huge iPhone Fees Juice Apple
"At $145, Apple is valued at about 25 times forward EPS," says the money manager. But with these sweeter-than-expected terms, "you could easily see it as a stock worth $200."
Apple shares rose 25 cents Monday to $144 after earlier touching an all-time high above $145.
Wireless sector watchers and analysts say Apple's iPhone terms with AT&T are the sweetest in the industry. Research in Motion's (RIMM) beloved BlackBerry phone comes closest: RIM collects about $170 bounty and $7 a month per phone from the telcos.
Telcos customarily fork over as much as $100 in rebates to hook new customers with free or lower cost phones. The payoff is usually 10 times that by the end of the contract if the customer hasn't canceled.From a financial standpoint, AT&T seems to be taking a big risk on the iPhone, shelling out a big commission and ongoing payments. But analysts see some logic to it. If AT&T sold half of the estimated 400,000 iPhones bought on the last two days of the quarter, its total payments to Apple for the period will be about $40 million -- a reasonably insignificant number compared to AT&T's $1.7 billion in quarterly operating expenses. Verizon Wireless -- co-owned by Verizon (VZ) and Vodafone (VOD) -- was the first company approached by Apple. But Verizon nixed the deal. It was thought at the time that Verizon didn't like the financial terms, but sources at the company now confirm that the deal was killed even before the terms were discussed. It was Apple's unbending position on iPhone distribution and the applications that would run on the phone that brought the talks to a quick end, these people say. AT&T reports its second quarter earnings before the opening bell Tuesday. Apple reports after the close Wednesday. Investors will be looking closely at the numbers for signs of the iPhone's effects. To watch Scott Moritz's video take of this column, click here.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV