AT&T Cannot Afford to Ignore Apple
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The smartphone revolution and popularity is working wonders for the second largest US carrier, AT&T (NYSE: T). The wireless giant posted a handsome set of numbers on its financials. All thanks to the Apple (NASDAQ: AAPL) iPhone, Google (NASDAQ: GOOG) Android handsets and Microsoft (NASDAQ: MSFT) Windows Phone. In fact the company witnessed the best ever income margin, thrashing chief rival Verizon (NYSE: VZ) by selling about a million more iPhones.
Considering the macroeconomic instability and other global issues such as the trouble surrounding Greece, one must agree that the wireless operator not only managed to deal with such concerns respectably, but at the same time posted strong numbers. Let’s take a brief look at the carrier’s financial performance.
Diving into the number pool
For the second quarter, the national carrier reported consolidated revenue totaling $31.6 billion. The company’s operating margins also increased to 21.6 percent, rising to $6.8 billion from $6.2 billion a year ago. Overall, the company pooled in a net income of $3.9 billion, up from $3.6 billion a year ago.
The total wireless revenue rose 4.8 percent to $16.4 billion. While the wireless service sales witnessed a decent increase of 4.3 percent to $14.8 billion, wireless data revenue shot up by 18.8 percent posting and impressive increase to $6.4 billion. AT&T also attained its best ever wireless service margin of 30.3 percent against 26.9 percent that it posted a year earlier. All this, as boasted by the company, is attributable to its advancing operating efficiency, lesser handset upgrades and the gain in revenue from its 43 million smartphone subscribers.
Not just this, the company experienced pretty decent metrics as well. The churn figures showed quite a remarkable improvement. Postpaid churn reduced to 0.97 percent from 1.15 percent a year ago quarter, while the overall churn witnessed a healthy drop from 1.43 percent in the last year comparable period to 1.18 percent this quarter. What more? In addition to the improving churn scenario, the wireless operator also saw gains in subscribers. It added 1.3 million in the quarter to pull up the total number of subscribers to 105.2 million. AT&T has more to brag about. The carrier’s average revenue per user, which increased 1.7 percent to $64.93, is the best in the industry.
The carrier’s reliance on the iPhone maker
In all this, the smartphone sales of the company actually stole the show. The company sold as many as 5.1 million smartphones in the quarter with iPhones accounting for a sale of 3.7 million units. Though the share of Apple’s smartphone has fallen to 72.5 percent in the quarter, it is still huge. In fact Verizon too experienced a declining sale from 3.2 million units to 2.7 million this quarter and Sprint is expected to witness the same when it reports its earnings.
The outlook on the contrary looks exciting as there’s more to come this fall, when Apple is expected to launch the iPhone 5. This will account for more sales for AT&T in the second half of the year. The company estimates to sell around 25 million smartphones this year and has managed to clear 10 million in the first half.
It will be interesting to see how things take a turn for the carriers with the release of iPhone 5, which is expected to run on the LTE networks. AT&T at the moment is the leading iPhone seller but it is going to face stiff competition from Verizon and Sprint. Smartphone sales play an essential role in keeping a regular flow of revenue for the carriers as well as in improving their ARPU. One cannot ignore the 77 percent contribution made by the smartphone in the postpaid sales of AT&T where the iPhone is the major contributor.
Other than the release of iPhone 5, there’s one more thing that the company is looking forward to: its shared data plan, the Mobile Share, which it announced last week and is expected to start offering from late August. CFO Stephens expects the data plan to have a positive effect on the company’s top-line. Well, I say: only time can answer!
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