Can Synchronoss Really Blame iPhone For Its Woes? (SNCR, AAPL, T)

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Synchronoss Technologies Inc (NASDAQ: SNCR) looks now like it will be one of the worst seen earnings moves of popular companies in all of this earnings season.  The outsourced device activation provider posted $0.16 non-GAAP EPS and revenues were $29.1 million. 

The company lowered next quarter guidance to $0.10 to $0.11 EPS on revenues of $24 to $25 million.  First Call had estimates of $0.19 EPS and $35.2 million in revenues.

After going back over everything, the company’s weak forecast is being largely attributed to declining revenue from activating Apple Inc’s (NASDAQ: AAPL) iPhone.  The reason isn’t iPhone sales, it is because of unlocked iPhones being hooked up to other carriers where Synchronoss doesn’t get the "activation fee" it gets through AT&T.  The company disclosed that 72% of last quarter’s revenues came from AT&T (NYSE: T), so you can see where the company needs to diversify its customer base much greater.

To try to stave off bad news, the company announced it would repurchase about $25 million worth of stock.  The company now is calling 2008 a transition year with suffering margins as it will invest to support the launch of new strategic customers and transaction types.  It expects 2009 (and beyond) to see the rewards.  The carnage is bad. Really bad.  Shares are down over 40% to $13.20 this morning on almost ten-times normal volume in just 30 minutes.  The prior 52-week trading range was $15.15 to $48.03.

Some may accept that this is really just from the single event of iPhones being unlocked.  But what is obvious as a heart attack is that the company needs to go line up more and more activation deals.  Then it needs to go out and figure out different revenue streams besides activations. This "outside event" won’t be enough to stave off the wave of class action lawsuits that will come by the end of this week (if not sooner).

Have you ever noticed how many of these companies that see huge gains as a result of being a supplier or beneficiary to one of the new hot Apple products end up taking severe haircuts and then staying down for the count?  We have seen this over the years.  Unfortunately, for all of these that fall from grace….. it seems like when you score a huge win from being tied to Apple that you better enjoy it while it lasts.

Jon C. Ogg
May 7, 2008