Phone
Profit, excluding retiree-benefit costs, amounted to 59 cents a share, beating the 51-cent average of projections compiled by Bloomberg. Dallas-based AT&T said today that it added 1.2 million contract customers and activated 2.4 million iPhones in the second quarter.
Revenue from data services such as text messaging surged 37 percent, bolstered by iPhone users. AT&T has squeezed more out of customers who use Web-equipped handsets like the iPhone because they typically spend more to download applications, like games. AT&T, the exclusive service provider in the U.S., began selling the 3GS model last month.
“Its pretty clear people are buying the iPhone because of the apps,” said UBS Securities LLC analyst John Hodulik, who is based in New York and advises investors to buy the shares. “That has definite implications. To use these apps you need a data plan.”
AT&T rose 90 cents, or 3.6 percent, to $25.74 at 12:34 p.m. in New York Stock Exchange composite trading, after earlier surging 4.5 percent, the biggest gain since April 22.
On average, iPhone users spend about 60 percent more a month than typical customers, AT&T has said. Apple said it sold more than 1 million of the iPhone 3GS models in the first three days of their debut. The device helped push profit up 15 percent at Cupertino, California-based Apple last quarter.
Forecasts Reiterated
AT&T also reaffirmed full-year forecasts for profit, cash flow and profit margins today. AT&T said in January that wireless operating income margins, before charges for depreciation and amortization, would be in the mid-40 percent range. AT&T predicted a 19-cent-a-share expense from pension and retiree benefits, and stable free cash flow.
During the second quarter, net income fell to $3.2 billion, or 54 cents a share, as sales to business customers dropped and the company paid to subsidize phones for new iPhone users. AT&T incurred a 5-cent cost for retiree benefits. The company posted net income of $3.77 billion, or 63 cents, a year earlier.
Second-quarter sales dropped less than 1 percent to $30.7 billion, and sales to businesses fell 5.4 percent to $10.6 billion. The economy probably wont recover enough by the end of the year to bolster the corporate business, Chief Financial Officer Rick Lindner said.
Getting Worse
“Enterprise is still getting worse, and by all accounts there are no green shoots out there,” said Sanford C. Bernstein analyst Craig Moffett, who is based in New York and doesnt own the shares. “Its not just unemployment, its overall GDP, overall retail sales and less factory restocking, all down the line results in reduced telecom activity.”
Still, AT&Ts contract customer additions beat Wells Fargo Securities analyst Jennifer Fritzsches 875,000 forecast. Average monthly revenue per user rose 2.3 percent to $60.21.
Phone companies are offering new devices, such as scaled- down personal computers, to get more customers onto their networks. AT&T and Sprint Nextel Corp., the third-largest wireless company, are selling e-readers that let customers download virtual books.
Subsidies
Carriers are subsidizing some netbooks, which typically cost less than $500, to encourage customers to sign up for contracts, which can deliver $1,000 or more in revenue over a two-year life span.
AT&T plans to start selling netbooks in about 2,200 stores nationwide in the coming days, cutting the machines prices to $200 when customers sign up for a two-year plan.
“The days coming where data is going to be bigger than voice,” said Edward Joness Rick Franklin. “Itll be a driving force for the entire industry.” The St. Louis-based analyst advises investors to buy the shares.