Nomura analyst Stuart Jeffrey believes a “key element” of Apple’s  iPhone business model is at risk as $23.5 billion in purchase commitments from Verizon Wireless come due this year. Jeffrey said Verizon Communications Inc. (NYSE:VZ)’s contract with Apple Inc. (NASDAQ:AAPL) appears to end this year as the deal comes due, with a liability of nearly $12 billion outstanding. A Verizon Communications Inc. (NYSE:VZ) shortfall of $12-14 billion would be valued at $4-5 per share.

Apple

Nomura : Key elements of Apple’s iPhone business model at risk

Nomura believe that the terms of Apple’s and Verizon Wireless’s contract may mitigate some of the $12 billion potential liability. Even so, the obligation seems likely to prove material given the starting size.  They believe that this situation puts Apple in an interesting position. Minimum purchase commitments have, Nomura believe, become a core part of Apple’s iPhone business model.

For example, for Sprint Nextel Corporation (NYSE:S) to range the iPhone the operator disclosed that it had to sign a minimum purchase commitment with Apple (estimated at 30 million devices or $20 billion by the Wall Street Journal), the size of which weighed on Sprint Nextel Corporation (NYSE:S)’s share price when announced. In addition, they believe that these minimum terms are the reason China Mobile and NTT DoCoMo are yet to sign a contract with Apple Inc. (NASDAQ:AAPL).

iPhone marketing support may fall if Apple waives obligation

If Apple Inc. (NASDAQ:AAPL) does not impose terms on Verizon Wireless, then other operators may believe that they too will not be punished by missing their commitments. The result of this could be that operators reduce their marketing support for the iPhone, in the hope of steering demand to Android phones that incur lower subsidies.

Hard to see Apple hurt a key customer

Nomura believes it is hard to imagine, however, that Apple Inc. (NASDAQ:AAPL) would really force its second-biggest customer to buy 19 million phones that it does not want and that would saturate the market. If other carriers face the same shortfalls – which seems possible given the lower-than-expected sales of the iPhone 5 – then it is hard to imagine Apple forcing all operators globally to meet their commitments in one go.

Apple’s bargaining position weakened as contract ends in 2013

Apple’s position is weakened, in Nomura’s view, by the apparent ending of its existing contract with Verizon Wireless at the end of 2013. If both parties dig their heels in, then Verizon Wireless could react by ordering 19 million iPhones in Q4, not sign a contract renewal with Apple Inc. (NASDAQ:AAPL), and still cover much of its requirements for 2014. Nomura doubt that Verizon Wireless would want to do this, but it might be better than paying out $12 billion for phones it cannot sell.

Nomura noted that there is no obviously elegant way for Apple Inc. (NASDAQ:AAPL) to get around this problem. The end result they suspect is that iPhone market share may come under greater pressure when its competitive position is relatively weak – as is arguably the case in 2013.