Although sales of Apple’s new iPhone 8 models appear to be slower than anticipated, Verizon is expecting a big pick up in sales for the more expensive iPhone X, which will be available for preorder starting next week.
Only 5.5% of Verizon (VZ) customers upgraded their phones in the third quarter when the iPhone 8 first went on sale, down from a 6.3% upgrade rate last year when Apple released the iPhone 7, the carrier said as part of its financial report on Thursday. The data point comes as across the wireless industry, carriers are seeing slower sales of the iPhone 8 compared to the iPhone 7. Possibly many consumers are holding out for the $999 iPhone X model, and the carriers this year also offered promotions that were less lucrative than last year for consumers buying the iPhone 8.
But Verizon CFO Matt Ellis sounded confident that the upgrade rate would improve as the iPhone X hits, as well as Google’s new Pixel 2 line of Android phones (GOOGL).
“I think what you’re seeing there is a difference in timing with some of the new devices coming out versus what we’ve historically seen,” Ellis said on a call with analysts. “Obviously Apple is part of that with splitting the new devices between the 8, which came out in 3Q and the ten, which comes out in 4Q. But also on the Android OS side of the house, we’ve had the new Google device coming out this month as well.”
The end result will be some of the usual third quarter smartphone upgrading activity will be pushed into the fourth quarter, he said.
“As we get into the holiday season, some of those new devices come out, we think we’ll see strong demand,” Ellis said. “And look if you’re paying $1,000 for a new handset you’re going to want that to be on a good network so we’re very confident that we’ll get more than our fair share of that activity when it comes through in the fourth quarter.”
Analysts have said the deferred demand might also have deferred some of the fierce competition in the wireless market that seemed to fade in the third quarter. Battling for customers who want to buy an iPhone X could bring back some of the deeper discounts and sweeter deals of 2016, they predicted, particularly from smaller carriers Sprint (S) and T-Mobile (TMUS).
“We expect switcihing activity to escalate and the challengers to resume more aggressive share gains following the iPhone X launch,” Jonathan Chaplin at New Street Research wrote on Thursday.
Earlier, Verizon reported that its revenue increased almost 3% to $31.7 billion, better than $31.4 billion analysts expected. Adjusted earnings per share of 98 cents matched analysts forecasts and were just below last year’s $1.01 for the same quarter. Verizon added 274,000 postpaid, or regular monthly, phone customers, about 60% more than analysts expected.
Shares of Verizon jumped 3% in morning trading on Thursday, thanks to the stronger than expected revenue and phone customer growth. Part of the sales growth was due to the acquisition of Yahoo, which closed in June. But the carrier’s wireless service revenue also slid less than expected, shrinking 5% instead of the almost 7% decline seen in the second quarter.
Apple (AAPL) shares have been under pressure due to the weak iPhone 8 sales indications. The stock lost almost 3% on Thursday amid rumors that the company asked its iPhone suppliers to cut back on production of the 8 models.