iPhone’s Verizon Deal May Call the Top

The true age of the smartphone can now begin: Verizon (NYSE: VZ ) is carrying Apple’s (NASDAQ: AAPL ) iPhone. Apple products have created hype in the past, but the news that the company’s smartphone would come to Verizon’s network in February has inspired hyperbole that’s practically messianic. The Daily Show ‘s Jon Stewart and correspondent John Oliver likened the announcement to V-E Day and, as far as their audience was concerned, they were only half kidding. UBS analyst John Hodulik expects Verizon to sell 13 million iPhones in 2011, Barclays’ Jame Ratcliffe says 9 million, and every other Wall Street analyst has announced expectations of sales between “many” and “a whole lot.” Between the deal with Verizon and expectations surrounding record-breaking holiday sales, Apple’s share price may finally hit that $400 target that has been predicted for nearly a year. The truth is that this new deal may not be the beginning of the iPhone’s glorious second phase — but rather a last hurrah before the device begins to see its market share worldwide plateau.  Kaufman Bros. analyst Shaw Wu said in a recent note to investors that Verizon had worked out a deal with Apple not dissimilar to the one AT&T (NYSE: T ) has enjoyed since the original iPhone released in 2007. The idea was that Verizon had convinced Apple to keep the iPhone exclusive to both Verizon and AT&T in the U.S. On Tuesday, Apple Chief Operating Officer Tim Cook said the deal with Verizon is “non-exclusive,” implying that the CDMA iPhone could come to Sprint Nextel’s (NYSE: S ) 3G network soon. It also could mean that a third model of iPhone, one using the GSM standard, could come to T-Mobile USA’s network. It appears that the CDMA iPhone is a necessary product for Apple this year — that the company has finally been forced to make its smartphone line as widely distributed as possible. More than a need to find new opportunities in the U.S. market, a Verizon CDMA iPhone is also a bid to finally bring the international iPhone market in line with its U.S. counterpart. New iPhone models have traditionally only been released in Asian and European markets months after they’re already sold here, but Apple has been slowly attempting to sync those releases. In 2010, the iPhone 4 made it to China just four months after its release in the U.S., a record turnaround for the company. The iPhone 4′s Chinese sales, however, show that new product launches for Apple don’t translate to spectacular sales : The iPhone 4 sold out in China within 10 hours of release, but only 100,000 phones were available.  Its the older models that tend to sell abroad. — the iPhone 3 and 3GS have helped Apple capture a 72% share of the Japanese smartphone market and a 32% of the European smartphone market traditionally controlled by Nokia (NYSE: NOK ) (These statistics are based on 2010 reports by MM Research Institute Ltd. and InMobi, respectively.) The announcement of a CDMA device for 3G networks at the beginning of 2011 — when most carriers are pushing newly opened 4G networks — seems to not be the bold populist move most folks are making it out to be. The Verizon iPhone is proof that Apple isn’t infallible in the smartphone market — they need to evolve now or face decline. Rather than evolve, they’ve gone for a lowest common denominator — a new phone working on an older 3G standard to bring in a necessary flux of new users in the U.S., as well as China and India via carriers China Telecom and Reliance if Morgan Stanley analyst Katy Huberty is right — before iPhone 4 sales bottom out. Of course, the CDMA iPhone may be Apple’s Trojan horse. If the company can lock millions of users into new multi-year contracts with carriers around the world in anticipation of a simultaneous international launch of a 4G iPhone 5 later this year, the company will have finally found a way to make their device truly ubiquitous. As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
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