With reports of the iPhone heading to Verizon (NYSE: VZ ) seemingly popping up every week, it has become easy to filter out each new report as background chatter. After all, this is the Castro of rumors, it just won't die! However, with The Wall Street Journal now confident enough in its usual unnamed sources to splash "Verizon to Get iPhone by Early Next Year" across its homepage, is it time for investors to once again believe the rumor mill?
Another day, another rumor
It's not that there isn't ample rationale for Apple (Nasdaq: AAPL ) to bolt to Verizon. Despite the massive popularity of the iPhone, Apple's U.S. market share has remained flat throughout 2010 as phones based on Google's (Nasdaq: GOOG ) operating system spread throughout every carrier and saw sales explode. Not only that, but in countries where Apple has pursued a multi-carrier strategy, its market share dwarfs its comparable U.S. share. A recent Gartner and Morgan Keenan smartphone report pegged Apple's Canadian mobile market share at around 12.4%, in France, the number sits at 11.6%, and in the United Kingdom, Apple commands 10% of the market. In all these markets, Apple uses multiple carriers.
Why you should remain skeptical
Despite how much sense an Apple and Verizon tie-up makes, we've seen these head fakes from even the most trusted financial sources before. In March of this year, The Wall Street Journal reported that Apple was working on a CDMA iPhone that'd be compatible with Verizon's network. In June, Bloomberg threw its weight behind a Verizon-based iPhone report.
Still, the vast production of differing components needed to equip a launch for a large carrier like Verizon requires long lead times. If Apple is readying to end its exclusive relationship with AT&T (NYSE: T ) in the U.S., now is the time that supplier orders would start leaking.
Qualcomm: always the source of the rumor
As always with a Verizon-inbound iPhone, Qualcomm (Nasdaq: QCOM ) takes center stage. Qualcomm is a leading supplier of the chipsets needed to run smartphones on Verizon's network. When TechCrunch recently reported that Verizon would get the iPhone in January, it was on reports that Qualcomm had issued a massive order of chipsets for a Verizon iPhone.
So, Qualcomm gets a natural bump based on any iPhone news. However, it's also important to note that iPhone sales might come at the expense of Android models using Qualcomm's Snapdragon processor, so there's a healthy level of cannibalization that should temper Qualcomm investors' enthusiasm for this bit of news.
Complicating matters is the unlikely situation where Apple is buying chips from Qualcomm not for a Verizon iPhone, but to power iPhones on AT&T's network. While Qualcomm is known mainly for its expertise developing chipsets for CDMA networks like Verizon, it also produces solutions tailored to a network like AT&T's.
Winners and losers of a Verizon iPhone
If rumors do prove correct, notable smartphone companies that would be affected include Samsung, HTC, and Motorola (NYSE: MOT ) . The companies have all benefited from Verizon placing high amounts of promotion behind their phones, pitching them as "iPhone killers." With the iPhone firmly on board, Verizon's incentive at promoting its alternative Android lineup fades away.
Lastly, Sprint Nextel (NYSE: S ) could see an eventual boost from the news. Sitting on the sidelines while rival Verizon gets the coveted iPhone doesn't sound ideal for the company, but it also means that Apple has extended its supply chain to include CDMA-based chipsets. Since Sprint, like Verizon, uses a CDMA network, a Verizon iPhone increases the chance Sprint could make a run at getting the iPhone on its own beleaguered network.
If an iPhone for Verizon is coming in time for early next year, expect reports to keep flowing out over the next two months. There's just too many suppliers to keep a launch this large a secret.
While Apple loses benefits from for its exclusive arrangement with AT&T (the company collects higher margins thanks to generous subsidies from AT&T, which would decrease if they used multiple carriers) and has to create separate models for differing networks and extend its list of suppliers, this is a massive opportunity for the company. The iPhone's strength in international markets has proven that the benefits of pursuing a multicarrier strategy outweigh any downsides.
Not only that, but Apple gets to slow down the growth of competing Android models. While the two platforms are successfully co-existing for now, it's never a bad idea to put the brakes on a rival that's attracting a significant amount of development talent and diminishing Apple's lead in dynamic apps that consumers crave.
So show caution, but if you're an Apple investor, there's every reason to be excited about a Verizon iPhone.