AT&T profit up, helped by iPhone sales drop

Tue Apr 24, 2012 1:29pm EDT
 
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By Sinead Carew

NEW YORK (Reuters) - AT&T Inc reported a higher-than-expected quarterly profit on Tuesday, sending its stock up as much as 4 percent, as a decline in iPhone sales reduced the amount of cash it had to pay Apple Inc and boosted its margins.

Apple shares fell almost 2 percent after AT&T also said its numbers should improve further in coming quarters when it expects recent upgrade policy changes to temper smartphone sales further.

Wireless operators have long paid hefty subsidies for smartphones like the iPhone with an aim to attracting new customers and keeping existing customers happy. But AT&T and rival Verizon Wireless have recently been tightening their policies to temper upgrades after they were both hurt by hefty iPhone subsidies in the fourth quarter, when the latest model hit stores.

While fewer iPhone sales meant weaker subscriber growth in the quarter, it did help the company's wireless profit.

Piper Jaffray analyst Christopher Larsen said AT&T's mobile service margin of 41.6 percent had beaten his expectation for 39.7 percent. The margin, based on earnings before interest, tax, depreciation and amortization, was 28.7 percent in the fourth quarter and 39 percent in the year-ago quarter.

"One of the big things is they didn't have such a big iPhone refresh," Larsen said, adding that AT&T results were "pretty good" across the entire company.

AT&T noted that its margin was also helped by the fact that the percentage of its customers using smartphones increased from the first quarter of the previous year.

The more often AT&T customers upgrade to a new iPhone, the more it hurts AT&T margins, because an existing customer does not necessarily increase his or her spending, while a new customer will automatically boost revenue.   Continued...

 
An At&T logo is seen atop a store in Beverly Hills, California August 31, 2011. REUTERS/Danny Moloshok