Todd Rethmeier, an analyst at Hudson Square Research recently cut AT&T from a buy to a hold, citing the impact of the iPhone 5.
Longtime carrier bear Craig Moffett of Bernstein Research calculates AT&T's third quarter margins could fall by 360 basis points and Verizon's by 270 basis points as a result of the iPhone 5. However, Moffett does not espouse more optimism on Sprint, arguing it faces a similar sized margin drop.
For investors, taking a long-term view of the iPhone 5 launch may be trump any short-term earnings dent and the fears that in a worst-case scenario, declining carrier margins could show the cyclical nature of carrier earnings, poking holes in the argument that these stocks are safe, dividend-yielding investments.
Yin of Guggenheim Securities, though, goes beyond the iPhone 5 launch in forecasting difficulty for the carriers that lingers through future launch cycles. In fact, he views the carriers as being better positioned as a smart and recurrent trade rather than a "safe" long-term investment."[Other] smartphone makers are now timing their major new product releases to be coincident with the iPhone.... this likely means upgrade patterns -- and therefore subsidy expense and margins -- will become increasingly cyclical over time, as not only iPhone users but Android and Windows users get accustomed to waiting for new models every Fall," the analyst writes. In recent weeks, Nokia (NOK), Google (GOOG) and Samsung have released new smartphones, while Amazon ( Amzn) recently launched an upgraded Kindle to take aim at the iPad. Carrier earnings swings could provide a trading opportunity, notes Yin, because many long-term trends continue to play out in AT&T an Verizon's earnings. For instance, an influx of customers to leading LTE-enabled networks may be a long-term earnings benefit, especially if new phones add to data demands and overage charges. Meanwhile, Sprint may be buffeted from iPhone 5 mania, as consumers decide whether unlimited iPhone 5 data plans outweigh the carrier's LTE network struggles. Subscriber outflows may be a near-term blessing. Meanwhile, takeover expectations may give Sprint a non-iPhone catalyst that could continue to drive the company's stock. As Sprint spends billions to upgrade its wireless network -- called Network Vision -- solid execution may make the carrier a more credible takeover candidate, according to Nomura Securities analyst Mike McCormack. In the least, it's a time for wireless carrier stock investors to take notice: as sales numbers for Apple's iPhone 5 blockbuster flow in, investors should prepare for performance to diverge after a strong first nine months to 2012. -- Written by Antoine Gara in New York
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