Growth of Unlocked IPhones Means Trouble for Synchronoss

SAN FRANCISCO (Dow Jones) -- While products from Apple -- such as the iPod and iPhone -- are known to have a "halo effect" that can boost other businesses, at least one company has found that the devil is in the details.

Synchronoss Technologies took a major hit this week as investors realized that a growing number of "unlocked" iPhones being sold on the market can wreak havoc on the company's bottom line.

Synchronoss makes software that helps the iPhone connect with AT&T, which means the company makes money every time an iPhone is activated on the network.

The association with the popular iPhone gave a strong boost to Synchronoss, which saw its stock price more than double between Apple's introduction of the device in January 2007 and its launch on the market just six months later.

The stock has since plunged, falling from a high near the $45 mark in October to its current price in the $12 to $13 range. Synchronoss went public in June 2006 at $8 a share. The stock slid more than 40% this week after the company "materially lowered" its growth expectations because of reduced revenues through the iPhone side of its business.

"While we search for clarity with respect to this situation, we recommend that investors move to the sidelines as we believe the stock can approach the single digits," Thomas Weisel analyst Tom Roderick wrote in a note to clients Wednesday, in which he downgraded Synchronoss to a market weight, or neutral, rating.

Outlook reduced

When Apple rolled out the iPhone almost a year ago, the company figured partnering with AT&T, the No. 1 wireless carrier in the U.S., would be the right move to immediately lock up a piece of the market for the device that combines an iPod with a mobile phone.

AT&T (T) charges customers between $60 and $120 a month for their iPhone service. AT&T also reportedly pays Apple a monthly fee of between $8 and $11 for every iPhone customer on its network.

Synchronoss hitched its ride to the iPhone and AT&T to such a degree that when it reported its first-quarter results on May 6, it earned $4.3 million, or 13 cents a share, on revenue of $29.1 million. Of those sales, Synchronoss said 72% were related to AT&T.

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Posted to the site on 9th May 2008

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