Apple Inc. (AAPL): What Verizon Communications Inc. (VZ)’s Numbers Actually Say

It seems like Apple Inc. (NASDAQ:AAPL) can´t get a break from negative news lately, earnings data from Verizon Communications Inc. (NYSE:VZ) has been interpreted as one more reason to sell the stock, and Apple Inc. (NASDAQ:AAPL)finally closed below $400 per share on Thursday after the report.

Digging below the surface, however, the data was actually quite good, and Apple Inc. (NASDAQ:AAPL) is looking like a contrarian opportunity.

The numbers

Verizon Communications Inc. (NYSE:VZ) sold 4 million iPhones in the last quarter, that´s a 25% increase versus the same quarter in the previous year, but a 33% fall from the December quarter. The December quarter includes the holidays, and it’s also the first full quarter in which the iPhone 5 was available, so a decrease from quarter to quarter was widely expected. The iPhone represented 55.5% of the smartphones activated by Verizon Communications Inc. (NYSE:VZ) in the first quarter of 2013, an increase versus a participation of 51% in the same quarter last year.

These numbers aren’t painting a dismal picture for Apple Inc. (NASDAQ:AAPL), on the contrary, the iPhone is showing healthy demand and even outgrowing the competition judging by Verizon Communications Inc. (NYSE:VZ) sales data. One particular data point looks worrisome though: only half of the activated iPhones were LTE, since the iPhone 5 is the only LTE model, this means that just half of the iPhones activated by Verizon Communications Inc. (NYSE:VZ) were iPhone 5.

This is below analyst´s expectations, and it shows that customers are increasingly finding the iPhone 4S and iPhone 4 more convenient options when it comes to the price and quality trade off versus the iPhone 5.

The meaning

Considering that Apple Inc. (NASDAQ:AAPL) was falling by more than 2.5% after the Verizon Communications Inc. (NYSE:VZ)report, investors seem to be focusing their attention on the negative part of the data, bigger participation of previous models in the sales mix. This factor means lower realized prices for Apple Inc. (NASDAQ:AAPL), but what it says about the products is probably more important.

To begin with, Verizon Communications Inc. (NYSE:VZ) benefits from this change in product mix since lower subsidies means a higher profit margin for the company. Carriers have been complaining about the subsidies issue for a long time, and pushing previous iPhone versions seems to be a smart strategy to get around this problem without renegotiating subsidies with Apple.

The fact remains, however, that even if carriers have part of the responsibility, many customers are finding it more attractive to save a few bucks and buy an older iPhone model as opposed to paying full price for an iPhone 5, and this has brought the attention back to the issue of quality and innovation at Apple.