Verizon (NYSE:VZ) sells about 40 million mobile phones annually from companies like Research in Motion (NASDAQ: RIMM), Motorola (NYSE:MOT), Nokia (NYSE:NOK), LG, Samsung and Palm. Currently, only a small fraction of these phones are smartphones like RIM’s BlackBerry.
We believe that Verizon will be able to increase the number of mobile phones sold to over 50 million and the smartphone mix of phones sold will continue to increase. We estimate that Verizon’s Mobile Phones & Plans business constitutes about 42% of the $35.18 price estimate for Verizon’s stock and that increasing mobile phone sales will be an important factor in the value of that business.
Smartphone Demand will Drive Mobile Phone Sales
Verizon sells three types of mobile phones: 3G smartphones, 3G multimedia devices, and simple feature phones. At the end of 2009, 26% of its monthly mobile subscriber base had either a 3G multimedia device or a smartphone.
Verizon expanded its smartphone portfolio significantly in 2009 to include Motorola’s Droid, HTC’s Droid Eris and RIM’s Blackberry Storm 2. Most of these products sold well in 2009 boosting Verizon’s mobile phone sales and helping the company sell more high priced data (internet, SMS) plans. The Palm Pre and Palm Pixi will further enhance the company’s growing smartphone portfolio.
We expect Verzon’s mobile phones sold to reach nearly 52 million by the end of Trefis forecast period, mainly led by growth in smartphones. As a result, Verizon revenue from mobile phone sales should increase from about $4.9 billion in 2010 to $5.8 billion by the end of the forecast period.
You can modify the forecast below to see how Verizon’s stock would be impacted if Verizon mobile phone sales were to grow slower than we forecast.
Smartphone Usage will Drive Mobile Data
In addition to driving sales of mobile phones, smartphones will increase the amount of money Verizon earns from data (internet, SMS) fees. For 2010, we estimate that Verizon will sell about 40 million mobile phones and that it will have a mobile phone subscriber base of about 92 million from which it will be able to earn higher data revenues.
Out of the 26% of Verizon’s monthly mobile subscribers that had a smartphone or multimedia phone in 2009, 15% had smartphones with a minimum $30 mobile data plan, and 11% had multimedia devices with a minimum of $10 plan.
We expect that the mix of Verizon smartphone subscribers will increase over our forecast period and that this will result in greater usage of mobile data which in turn will lead to higher Verizon mobile data revenues. Our recent article 3G/4G Mobile Phones Will Boost Verizon’s Data Revenue and Stock provides additional detail on how high data revenue per subscriber may go.
