Toni Sacconaghi: Apple Faces Risk of Carriers "Blinking"

Tony Sacconaghi of Sanford C Bernstein thinks Apple

faces material risk to its current earnings stream if one or more carriers balk at continuing the enormous current subsidies on its popular iPhone. iPhone currently accounts for over 70 percent of the company's profits. "Apple drives a ot of its profits from carrier subsidies." he tells CNBC's Squawk on the Street's Half-Time Report. "We think the iPhone subsidizes at $400-plis per phone by carriers. That is meaningful. If that goes to $300 or $250, that is a material hit to Apple's earnings stream." "The problem is that carrier structures both domestically and internationally are oligopolies." continues Sacconaghi. "If somebody does blink and say "I can try to lower subsidies on Apple," the incentive for everyone else to defect from that prisoner's dilema situation is extremely high. They'll say "We are not going to do it, We'll take your iPhone subscribers. You have a set of intense competitors agree to try to lower subsidies." However, Sacconaghi notes that such carrier behavior is not what we are seeing at the moment. "We're actually seeing the opposite, which is, despite the incredible subsidies, everyone is saying "I need the iPhone" and they are willing to pay for it as they can't live with it or without it." he concludes. AAPL is currently trading at $598.65, up 2.24 percent on Friday's close.