Apple won't pursue Circuit City; 250,000 iPhones sold to unlockers
During a conference call marred by technical glitches Monday evening, Apple did manage a handful of interesting revelations, mainly that it will not pursue a relationship with Circuit City for Mac sales and that an estimated 250,000 iPhones were sold to buyers who intended to unlock them.
The focus is Best Buy
Apple, which last year initiated a pilot program to test Mac sales at a handful of Circuit City stores in the eastern U.S., said Monday that it has decided not to continue the program with the electronics retailer at this time.
Instead, the Mac maker said it will focus the majority of its energies towards its growing relationship with Best Buy -- the nation's No. 1 electronics specialty retailer and Circuit City rival.
Apple said it ended the September quarter with store-within-a-store boutiques at 230 Best Buy locations and that it plans to expanded that number to 270 locations by the end of the calendar year.
In recent months, the company has begun fitting some of its higher profile Best Buy locations with radically improved Apple store-within-a-store concepts. These isolated Apple display areas sit ahead of the retailer's computing department and feature mini theaters that pack stereo speakers and an embedded LCD display flanked by two glowing Apple logos.
Apple began its Best Buy pilot about three months ahead of its Circuit City effort in June of last year.
A quarter million unlockers
If you thought Piper Jaffray analyst Gene Munster was overdoing it when he estimated that 10 percent of iPhones sold by Apple retail stores in September were destined to be unlocked, then you may have to pick your jaw off the floor when you hear Apple's own guesstimate.
The company said Monday it believes that 250,000 -- or more than 17 percent -- of the 1.4 million iPhones sold thus far were bought by customers who intended to unlock them. The vast majority of these purchases came following September's massive price cut on the touch-screen handsets, the company added.
Apple's multi-year exclusive agreement with AT&T includes a revenue share agreement on the data and service fees AT&T charges iPhone customers. Obviously, Apple would not receive its portion of the proceeds under this agreement from unlocked versions of the iPhone, as those handsets would not be operating on AT&T's network.
More details from Apple's Q4 conference call have been compiled in a separate report.
The focus is Best Buy
Apple, which last year initiated a pilot program to test Mac sales at a handful of Circuit City stores in the eastern U.S., said Monday that it has decided not to continue the program with the electronics retailer at this time.
Instead, the Mac maker said it will focus the majority of its energies towards its growing relationship with Best Buy -- the nation's No. 1 electronics specialty retailer and Circuit City rival.
Apple said it ended the September quarter with store-within-a-store boutiques at 230 Best Buy locations and that it plans to expanded that number to 270 locations by the end of the calendar year.
In recent months, the company has begun fitting some of its higher profile Best Buy locations with radically improved Apple store-within-a-store concepts. These isolated Apple display areas sit ahead of the retailer's computing department and feature mini theaters that pack stereo speakers and an embedded LCD display flanked by two glowing Apple logos.
Apple began its Best Buy pilot about three months ahead of its Circuit City effort in June of last year.
A quarter million unlockers
If you thought Piper Jaffray analyst Gene Munster was overdoing it when he estimated that 10 percent of iPhones sold by Apple retail stores in September were destined to be unlocked, then you may have to pick your jaw off the floor when you hear Apple's own guesstimate.
The company said Monday it believes that 250,000 -- or more than 17 percent -- of the 1.4 million iPhones sold thus far were bought by customers who intended to unlock them. The vast majority of these purchases came following September's massive price cut on the touch-screen handsets, the company added.
Apple's multi-year exclusive agreement with AT&T includes a revenue share agreement on the data and service fees AT&T charges iPhone customers. Obviously, Apple would not receive its portion of the proceeds under this agreement from unlocked versions of the iPhone, as those handsets would not be operating on AT&T's network.
More details from Apple's Q4 conference call have been compiled in a separate report.
Comments
OTOH, I agree with their decision on Circuit City... they stink. At least Best Buy stinks a little less.
The unlock figures merely illustrate the fact that the deal between Apple and at&t, while good for the bottom line, makes no sense for the consumer. Apple needs to speed the day of severance with at&t to get more iPhones in more hands.
I thought it illustrated the fact that about 17% of buyers want the iphone, but not an AT&T contract. Doesn't say why, and certainly doesn't mean that the deal makes no sense to customers.
I personally thought this was very interesting about the call:
Apple Japan accounted for 72,000 Mac sales and $255M in revenues. These figures are up 16 percent in units but down 11 percent in revenue year-over-year, and down 11 percent and 1 percent in these respective areas sequentially.
Higher sales and lower revenues? Driven by higher cost of goods sold I assume? Strange that other regions did not have this problem.
And that means the number is not entirely an indicator of how many people want a hacked, unsupported phone--or even how many want a carrier other than AT&T. Instead, it's partly an indication of what resellers of hacked phones EXPECT to be able to sell.
I wonder how many of those will end up being re-sold as unhacked AT&T phones after all?
Higher sales and lower revenues? Driven by higher cost of goods sold I assume? Strange that other regions did not have this problem.
Perhaps also because the often cited space consciousness of the Japanese, and the 20" iMac might be a cutoff line, with people not having space for the 24"?
/Adrian
In the operating segment summary, the revenue listed next to number of Mac units is actually all sales revenue, not just Mac sales revenue.
Note that the 250k sold for unlocking includes people who intend to RESELL them. In fact, I'd guess that MOST of them were sold with intent to resell.
And that means the number is not entirely an indicator of how many people want a hacked, unsupported phone--or even how many want a carrier other than AT&T. Instead, it's partly an indication of what resellers of hacked phones EXPECT to be able to sell.
I wonder how many of those will end up being re-sold as unhacked AT&T phones after all?
As confirmation for your thought, I think Carl Howe at Blackfriarsinc.com/blog was reporting that the NY store (and California stores) was busy selling multiple (like 10) iPhones per customer after the price cut, and that both Apple and analysts suspected that these iPhones were being transported into Europe and Asia.
I think this occurred before the 1.1.1. update aka the brick episode. Don't know whether this sales pattern continued after.
OTOH, I agree with their decision on Circuit City... they stink. At least Best Buy stinks a little less.
In my area (NY/NJ) the Best Buy stores are crowded, messy, dirty and jumbled. The staff seems almost non-existent -- which is a blessing, given the level of knowledge and experience. The Circuit City stores seem almost quiet and civilized by comparison. However, (from personal experience) when you get up to the checkout/customer service desk, Best Buy is like a well-oiled machine, while at Circuit City four people always seem to be standing around ignoring everyone waiting to pay for something or pick up their orders.
The unlock figures merely illustrate the fact that the deal between Apple and at&t, while good for the bottom line, makes no sense for the consumer. Apple needs to speed the day of severance with at&t to get more iPhones in more hands.
OTOH, I agree with their decision on Circuit City... they stink. At least Best Buy stinks a little less.
I can't speak for anywhere else but here in GA the Best Buy stores do a pretty good job of marketing Apple products. The ones in my area have a full Mac setup and have two field employees all the time, not Best Buy employees. Not sure how long that will last.
Selection of software is pretty weak but they carry all the hardware.
(Referring to Japan) Higher sales and lower revenues? Driven by higher cost of goods sold I assume? Strange that other regions did not have this problem.
Competition and price pressure from Taiwanese/Chinese subnotebook PCs that the Japanese seem to be very happy with.
IMHO, Apple Japan is gone-zo. And, that's just as well. Apple should just let go.
Two months ago, Apple pulled the Apple rep from the CompUSA and put him in the Best Buy.
While I hate Worst Buy, the Apple setup is amazingly better.
CompUSA shoved the Apple store into a back corner and was constantly "reorganizing" it to look worse than ever. And, the CompUSA store just seemed dirty. My wife hated to walk into the store. I don't understand Carlos Slim's approach with CompUSA.
Mac sales are up in the new location.
Good decision on Apple's part.
The unlock figures merely illustrate the fact that the deal between Apple and at&t, while good for the bottom line, makes no sense for the consumer. Apple needs to speed the day of severance with at&t to get more iPhones in more hands.
How would Apple have been able to launch the iPhone unless it had a contract with a provider who was whiling to modify their network so as to accommodate the iPhone's voice mail, etc. I'm sure Apple would rather have made the iPhone available to everyone on any network without sacrificing the iPhone's functionality. Think about it.
Competition and price pressure from Taiwanese/Chinese subnotebook PCs that the Japanese seem to be very happy with.
IMHO, Apple Japan is gone-zo. And, that's just as well. Apple should just let go.
Apple was in a similar position in the US just 6-7 years ago, and now look where they are at.. They just need to keep chipping away.. Japan will come round.
The unlock figures merely illustrate the fact that the deal between Apple and at&t, while good for the bottom line, makes no sense for the consumer. Apple needs to speed the day of severance with at&t to get more iPhones in more hands.
If not for the exclusive contract with AT&T, the iPhone's feature set would be severely handicapped.
From WSJ, Walt Mossberg today:
"To my knowledge, only one phone maker, Apple Inc., has been permitted to introduce a cellphone with the cooperation of a U.S. carrier without that carrier having any say in the hardware and software design of the product. And that one example, the iPhone, was a special case, because Apple is currently the hottest digital brand on earth, with its own multibillion-dollar online and physical retail network," Mossberg writes.
"Even so, Apple had to make a deal with the devil to gain the freedom to offer an unimpaired product directly to users. It gave AT&T exclusive rights to be the iPhone's U.S. network for an undisclosed period of years.
With only one carrier Apple has only one negotiation to make and has more control.
Apple would have had little control over the iPhone had it been open to all mobile carriers. AT&t, Sprint, Verizon would have all dictated different functionality and cost.
I daresay none of us will ever be privy to the substance of the negotiations that preceded Steve's final decision. Just as well.
I daresay none of us will ever be privy to the substance of the negotiations that preceded Steve's final decision. Just as well.
No we won't. But we do know that Apple "talked" with several different carriers and Verizon (if not all carriers) would not agree to Apple's terms. Whether that was because of Apple wanting full control over development and network features or because Verizon was not willing to pay the unprecedented monthly fee's that Apple demanded, we will never know. But there are many reasons why an unlocked iPhone in the US market could never be what the iPhone is under exclusive contract with AT&T.
In my area (NY/NJ) the Best Buy stores are crowded, messy, dirty and jumbled. The staff seems almost non-existent -- which is a blessing, given the level of knowledge and experience. The Circuit City stores seem almost quiet and civilized by comparison. However, (from personal experience) when you get up to the checkout/customer service desk, Best Buy is like a well-oiled machine, while at Circuit City four people always seem to be standing around ignoring everyone waiting to pay for something or pick up their orders.
So insanely true.
* And I'm in Bellevue, Washington!
In my area (NY/NJ) the Best Buy stores are crowded, messy, dirty and jumbled. The staff seems almost non-existent -- which is a blessing, given the level of knowledge and experience. The Circuit City stores seem almost quiet and civilized by comparison. However, (from personal experience) when you get up to the checkout/customer service desk, Best Buy is like a well-oiled machine, while at Circuit City four people always seem to be standing around ignoring everyone waiting to pay for something or pick up their orders.
Right... Best Buy reminds me of Walmart. Its a mess. Disorganized, busy, discarded weekend circulars on the floor, children with sticky fingers playing Guitar Hero.
Circuit city in contrast looks like it could go out of business any day now. There's never anyone at the store near me, except on holidays when there are sales going on.
I think Apple will probably place very high standards on Best Buy's "Apple shop", but its inevitable that things will fall apart (broken mice, keyboards with missing keys) because nobody will give a crap about quality and presentation. Any chance this could degrade the Apple brand slightly? Maybe, but could be outweighed by the additional brand awareness. I guess any awareness is good awareness!