Beyond Verizon Communications Inc. (VZ)’s Earnings

Verizon Communications Inc.The nation’s largest cellphone carrier Verizon Communications Inc. (NYSE:VZ) Wireless reported its first quarter 2013 results, posting a solid 16% growth in profit led by its wireless revenue. The company’s impressive performance was driven by the popularity of its shared data plan, which helped the New York based telecom provider capitalize on the rising data consumption level. In addition, the company’s increasing FiOS Internet service and television subscription boosted its wireline business revenue.

But out of all this, Verizon Communications Inc. (NYSE:VZ)’s iPhone sales is the biggest news for this quarter. Let’s take a closer look at the company’s performance in this period and analyze what it means for investors.

Verizon’s Apple Inc. (NASDAQ:AAPL) connection – playing a bigger role

In its earnings conference, Verizon Communications Inc. (NYSE:VZ) stated that it activated about 4 million iPhones during the quarter. In total, the Big Red accounted for 7.2 million smartphone activations, which implies that iPhone accounted for over half the company’s smartphone sales for the quarter. However, out of these 4 million iPhones, only half were LTE devices or iPhone 5 and the rest were iPhone 4 and 4S. Huge discounts of $100 and $200 on iPhone 4S and 4 are to be blamed for softer iPhone 5 sales. In comparison, last quarter 6.2 million iPhones were sold, which represented 64% of the total smartphone sales of the carrier.

However, this shouldn’t be taken negatively. The reason being, iPhone 5 was launched in the last quarter of 2012 in the holiday shopping season, which conventionally sees stupendous sales as people go crazy to get their hands on the newly launched iPhone. The first quarter sales trend on the other hand is softer. iPhone sales are usually down in this period just after the holiday season. A number of people may be unhappy with the 33% tumble in iPhone sales compared to the fourth quarter. However, the fact is that 3.2 million iPhones were sold in the first quarter last year, which rose 25% to 4 million this year.

Now it would be interesting to see how the next couple of quarters turn out to be as Galaxy S4 is slated to hit the market. Even Apple Inc. (NASDAQ:AAPL) is heard to be launching a revised version of the iPhone 5 in June.

At present, Verizon Communications Inc. (NYSE:VZ) and Apple’s relationship is getting stronger. There was a time when AT&T Inc. (NYSE:T) was the sole carrier to sell the iPhone. But once the other major carriers Verizon, Sprint Nextel Corporation (NYSE:S) and lately T-Mobile started selling the iPhone, AT&T Inc. (NYSE:T) lost the exclusivity. This made the Dallas carrier get in touch with Android vendors and promote their smartphones to reduce dependence on Apple Inc. (NASDAQ:AAPL).

While Verizon and Apple are getting more crucial to each other’s success, let’s check out the other numbers that made the largest US carrier post such a strong quarter.

A dive into the numbers

The company saw a 4.2% growth in its revenue, which increased to $29.4 billion, compared to last year’s revenue figure. The bottom-line experienced an impressive jump of 15.8% to $1.95 billion. The company’s service revenue grew 8.6% to $16.7 billion, which forms a major chunk of Verizon’s total revenue.

In all this, the wireless margin of over 50% came as the biggest surprise from the carrier, particularly as the past few quarters showed a decline in margins. Closest rival AT&T recorded a wireless margin of 41.6% in the first quarter of 2012.