The iPhone5 isn’t the most popular device with Cricket Wireless. The new smartphone retails for a hefty $500 but there is no contract involved.
Leap Wireless had high expectations for the iPhone5, but so far they have been proved wrong. Now it’s predicted there will be $100 million worth of unsold stock by early summer. In a recent 10-SEC filing, it’s expected the carrier will have sold about half of its expected units.
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Last year, Leap Wireless signed a commitment with Apple Inc. (NASDAQ:AAPL) for three years. A month later, Cricket started selling the smartphones. In the agreement, Leap has to purchase many phones from Apple even if they don’t sell them.
Leap Wireless explains, “At our current purchase rate, we project that we will purchase approximately one-half of our first-year minimum purchase commitment through June 2013 … If Apple Inc. (NASDAQ:AAPL) were to require us to meet the annual minimum commitment in each of the three years of the contract term, we estimate that we would be required to purchase approximately $100 million of additional iPhones in mid-2013 above our current purchase rate, approximately $150 million of additional iPhones in mid-2014 above our current purchase rate and approximately $200 million of additional iPhones in mid-2015 above our current purchase rate.”
Although it’s evident the steep price may have a significant effect on the sale numbers, Leap Wireless attributes the limited network coverage as a contributing factor to low sales instead. Both Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) offer coverage throughout the United States, whereas Cricket’s coverage isn’t so extensive. This means potential customers have to look elsewhere if they want to purchase the iPhone 5. The company added that if Apple Inc. (NASDAQ:AAPL) released an AWS-compatible device in the near future, they could sell the device in more markets. Since it’s highly unlikely that Apple will renegotiate, Leap may have to look elsewhere.
Potential options include leasing or financing programs which would spread out the payments over monthly payments. The company could also lower the price of the phone. Despite the large financial burden, the COO for Leap Wireless has no worries about meeting the Apple Inc. (NASDAQ:AAPL) commitment.