iPhone 5 to Crimp Wireless Carriers' Profits

NEW YORK (TheStreet) -- People around the world are lining up at Apple (AAPL) Stores today for the iPhone 5 in what's expected to be a record debut for the smartphone, whose first iteration was released five years ago.

But wireless carriers such as Sprint (S), Verizon (VZ) and AT&T (T) will, initially at least, be hurt by the iPhone 5. Analysts say Apple may sell 10 million units by the end of Sunday.

Carriers are richly rewarded by two-year contracts and expensive messaging plans. But, over the short term, it's a different story, as profit margins shrink, especially with the iPhone 5 being so popular. That's because they must subsidize the smartphone by a large amount (about $449 for the 16-gigabyte version).

Wells Fargo analyst Jennifer M. Fritzsche said Sprint will lose more money this year and next than she previously estimated (earnings per share of minus $2.11 versus minus $2.09 for 2012, and minus $1.50 from minus $1.49 for 2013).

Still, she raised her price target range to $6.25-$6.75, saying mergers may become more prevalent in the industry. Fritzsche rates Sprint shares "outperform."

The Wells Fargo analyst cut her margin estimates from 14.7% to 11.4% for the third quarter on the basis that Sprint will sell 1.6 million iPhones in the quarter, up 600,000 from her previous estimate.

Verizon Chief Financial Officer Fran Shammo made comments last week at an investor conference that the iPhone 5 wouldn't hurt margins too much, but that it would be dependent on whether there's enough supply to meet the burgeoning demand.

AT&T Chief Financial Officer John Stephens was more candid at an investor conference last week, saying the phone would crimp everyone's results, especially AT&T's, due to its large iPhone user base.

Shares of Sprint are up 1.1% in Friday trade to $5.50.

Interested in more on Sprint? See TheStreet Ratings' report card for this stock.

--Written by Chris Ciaccia in New York

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