Growth of Unlocked IPhones Means Trouble for Synchronoss

But Apple will likely weather the unlocked iPhone storm. Even if the company misses out on those monthly carrier payments, it still maintains high margins on every iPhone sold, and it continues to bring the iPhone into new markets. Earlier this week, British wireless giant Vodafone Group said it would begin selling the iPhone in 10 countries later this year including Australia, India and the Czech Republic.

However, for Synchronoss, the unlocked iPhone matter is one that could put it in a hole that it might have trouble climbing out from. The company said it expects AT&T to make up 40% of its total sales for 2008. And even though it is signing up new customers -- it has a software deal with Sprint Nextel that is slow to ramp up, as well as opportunities with European carriers -- it doesn't expect to see the benefits of those deals until 2009 at the earliest.

Another PortalPlayer?

While Synchronoss is in an enviable position of being a key partner to the iPhone, it might learn from what happened to another, small tech company that was tied to Apple for the majority of its business.

PortalPlayer rode the coattails of the iPod boom for several years, as its chips and software were used by Apple to decode and process song information in the line of iPods. At its peak, PortalPlayer got 90% of its revenue from Apple.

But Apple cut PortalPlayer out from a series of iPod upgrades in early 2006. The company's sales, earnings and stock price faltered and never recovered and CEO Gary Johnson resigned.

On Nov. 6, 2006, PortalPlayer sold itself to graphics chipmaker Nvidia for $357 million.

Some remain hopeful that Synchronoss will be able to grow its other revenues lines to offset for the loss of iPhone business. Goldman Sachs analyst Elizabeth Grausam issued a report Friday in which she said she maintained her buy rating on the stock after meeting with the company's management and coming away with a belief in the "strength in non-iPhone core accounts which are set to accelerate" through next year.

"We believe management has a strong appreciation of its need to rebuild credibility with the investment community after two quarters of disappointment due to the iPhone," Grausam wrote. "We expect the stock will recover from this near-term set-back and that trends outside of the iPhone remain robust."

(END) Dow Jones Newswires

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Posted to the site on 9th May 2008

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