Synchronoss, the company that let Apple (AAPL) iPhone buyers activate their at home via iTunes, just lost a quarter of their business. Why? Because Apple’s new $199, 3G iPhones come with a new rule: You have to activate them for AT&T (T) service before you leave the store. Which means Synchronoss’ at-home activation system is now out of the picture.
“Synchronoss will not participate in the on-site, retail store activations associated with the 3G iPhone, which was already taken into consideration when we provided our revised financial outlook on our first quarter 2008 financial results conference call,” the company confirmed in a filing with the SEC yesterday. Shares tumbled as much as 19%.
This explains the somewhat confusing outlook warning the company gave during its Q1 earnings report last month, which caused shares to drop 44% in after-hours trading. Synchronoss (SNCR) almost certainly knew in May that it wouldn’t be part of the in-store 3G iPhone activation process, but couldn’t say anything because of its NDA with Apple/AT&T. (Hat tip to Skydeck founder Jason Devitt for predicting this in our comments — and on his blog — more than a month ago.)
But Synchronoss still had to warn investors that its iPhone revenue would drop $30 million this year; in 2007, it only generated $124 million. So it spun a vague story. Now, we learn, the answer is much more simple: They got kicked to the curb. (They’ll still keep some of their iPhone “activation and provisioning” business with AT&T, they say in their SEC filing. But we don’t really know what that means, since they won’t be doing the in-store activations — which are the only activations for the 3G iPhone.) Synchronoss stock is down another 3% today, and down 78% from its 52-week high, reached last fall.
This isn’t the first time a company has been burned from relying on Apple’s gadgets for a big chunk of their businesses. Chipmaker PortalPlayer got almost all of its money making the guts for early iPods, and went public — in 2004, when investors wouldn’t get within miles of a tech IPO — based on that story. A couple years later, after Apple had abandoned it for other suppliers, it had to settle for a fire sale to Nvidia.