Apple Shares Weaken After Analyst Note on Concerns over Verizon Deal (AAPL,VZ,S,T)

What is going on behind the scenes at Apple? And why did the iPhone maker's shares spiral lower Tuesday?

by Chip Brian

apple12/3/2009-Late in Tuesday's session shares of the popular iPhone maker, Apple (NASDAQ:AAPL) tumbled almost 4% in the last hour of trading, leaving many investors pondering what news caused the spike in volume and its plunge lower.

Rumors have been circulating over why shares of the company have been trading in such volatile fashion both late Tuesday as well as Wednesday. The drop may be due to rumors regarding the iPhone's future carrier(s). Apple's current exclusive deal with number 2 carrier AT&T is believed to expire in 2010, and a Kaufman Brothers analyst, Shaw Wu, said that while many hope the next agreement will be with the world's largest carrier Verizon (NYSE:VZ), it may only be wishful thinking.

According to a note to clients Wednesday morning, Wu said the problem with a Apple and Verizon agreement is that both of their success has been driven by "customer control" and the similarity may be what drives them apart.

As Apple runs its own Application store, Verizon has aspirations to do the same. Wu said, "Apple controls the media experience with iTunes and VZ with its V CAST service. Moreover, Apple gets very favorable economics with an overall iPhone (average selling price) of $611 and at AT&T, we estimate it is higher at roughly $700. RIM, who is by far VZ's largest smart phone supplier, only has an ASP of $340. Palm's ASP is $436 and we estimate Motorola's Droid ASP is roughly $450."

Instead, Wu said Apple will look elsewhere for a carrier and most likely strike a deal with both Sprint (NYSE:S) and T-Mobile, which have 48 million customers and 33 million customers, respectively.

Wu did say, however, that Apple may extend its existing contract with AT&T through 2011.