Tracking down Apple's missing 1.4m iPhones

[AppleInsider]

Apple says it has shipped four million iPhones since launch. With just short of two million AT&T customers using the device, however, one analyst suggests that a large number of the handsets are mysteriously unaccounted for.

Toni Sacconaghi of Bernstein Research observes in a note to investors that the gap between Apple's shipment claims, AT&T's subscription numbers, and European projections should leave roughly 1.4 million of the devices to be split between unlocked devices and those simply idling on store shelves.

While European sales have not been detailed in full, they're unlikely to have represented the majority of that remaining amount, the researcher says. If claims of 190,000 UK iPhone sales are accurate and are combined with official results of 70,000 French models and a similar number from T-Mobile Germany, Apple will have sold approximately 350,000 devices outside of the US -- well short of filling the gap left by AT&T's customer base.

The gray market for unlocked iPhones is also unlikely to explain the difference, Sacconaghi says. For its summer quarter, Apple reported 250,000 likely unlocked iPhones in its sales figures, or about 18 percent of the inventory shipped at the time. Assuming about 20 percent of iPhones were unlocked -- a 'generous' amount, the analyst adds -- this would only account for about 750,000 of the 1.4 million phones and leave about 670,000 of the phones "missing in action," according to the note.



For Sacconaghi, this points to the potentially worrying prospect that a significant number of iPhones remain in Apple's channel inventory, whether at its warehouses or at retail locations. If all the 670,000 handsets were to land at the carrier-specific distribution points around the world, this would leave as many as 150 iPhones at each store by the start of 2008.

This excess stock may be partly absorbed by Apple's own inventory but could run higher still if the company has successfully reduced the number of iPhone unlocking attempts through successive firmware updates or by controlling the number of phones sold at once. If just 10 percent were sold unlocked in the last quarter, it would leave more than one million iPhones unexplained and as many as 238 iPhones unsold per store.



Apple has not provided an explanation for the apparent shortfall. Regardless, the Bernstein report suggests the possibility of cooling demand for the iPhone that is at least partly masked by official shipment numbers, which only indicate the number of products leaving the company's factories.

"This is negative in two ways," Sacconaghi elaborates. "It indicates end-user demand for iPhone is lower than many investors may think based on Apple's [four million] sales figure... and it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down."

[PhotoMacUser]

The one bit of information missing from AT&T is if they are only counting new accounts? What about all the people, like my friend who already had AT&T, bought an iPhone from Apple and Activated it on his existing account? Hmmm?!

I dumped my Verizon, paid the $150 termination fee and never looked back. This device it miles ahead in terms of usability and function. AT&T has better service in my area than Verizon does (hard to believe but TRUE).

[TBaggins]

Ah, so it's 4 million iPhones SHIPPED, not SOLD.

That's an old video game console trick, a la Sony and Microsoft. Shoulda seen that one.


.

[Matthew Yohe]

Originally Posted by PhotoMacUser

The one bit of information missing from AT&T is if they are only counting new accounts? What about all the people, like my friend who already had AT&T, bought an iPhone from Apple and Activated it on his existing account? Hmmm?!

Reuters: AT&T Inc, the exclusive U.S. carrier for Apple Inc's iPhone said on Thursday it ended 2007 with "just at or slightly under 2 million iPhone customers."

[tbsteph]

First off, I think this is a tempest in a teapot. VERY unlikely AAPL would mistate iPhone sales results. Second, in addition to unlocked phones sold how about those sold which have not been activated?

[SpamSandwich]

Originally Posted by TBaggins

Ah, so it's 4 million iPhones SHIPPED, not SOLD.

That's an old video game console trick, a la Sony and Microsoft. Shoulda seen that one.


.

OMG. Expect AAPL to get pounded again tomorrow. Investors are finally taking full advantage of kicking Apple's butt. Ouch.

[dagamer34]

Originally Posted by tbsteph

First off, I think this is a tempest in a teapot. VERY unlikely AAPL would mistate iPhone sales results. Second, in addition to unlocked phones sold how about those sold which have not been activated?

Sold and not activated phones appear just like unlocked phones, and since the holidays are over, I don't think many people are hording them anymore. Plus the 4.6 bootloader has put a stop to easy unlocking that doesn't require you to buy a TurboSIM or any of its variants.

Maybe when an iPhone with a 4.6 bootloader can be unlocked via software, sales might pick up again, but until then I'm holding onto my OTB 1.1.1 dearly and advising none of my non-AT&T friends to go pick one up thinking I can unlock it for them.

[PhotoMacUser]

Originally Posted by Matthew Yohe

Reuters: AT&T Inc, the exclusive U.S. carrier for Apple Inc's iPhone said on Thursday it ended 2007 with "just at or slightly under 2 million iPhone customers."

The 2 million iPhone question is "Are those 2 million "New" users with iPhone or 2 million iPhones being used on their network total (including customers already with AT&T)?". The way I read the report was iPhone brought 2 million NEW AT&T customers. Perhaps there will be clarification soon. If it is found to be true that Apple/AT&T has misstated the number of iPhones sold, it will have a very negative effect on Apple's stock.

[8CoreWhore]

Probably slipping through the hands of contractors in Iraq.

[davidb1]

Originally Posted by TBaggins

Ah, so it's 4 million iPhones SHIPPED, not SOLD.

I just went back and looked at the Keynote. Steve Jobs said that they "sold" 4 million iPhones not shipped 4 million in the first 200 days.

[Wally]

Originally Posted by PhotoMacUser

The one bit of information missing from AT&T is if they are only counting new accounts? What about all the people, like my friend who already had AT&T, bought an iPhone from Apple and Activated it on his existing account? Hmmm?!

Exactly. Someone needs to cram this "analysts" head in a beach-bathroom toilet, slam the lid down and flush several times. Dipshit.

[TBaggins]

Originally Posted by davidb1

I just went back and looked at the Keynote. Steve Jobs said that they "sold" 4 million iPhones not shipped 4 million in the first 200 days.

And in contrast, we have AppleInsider:

Originally Posted by AppleInsider

Apple says it has shipped four million iPhones since launch.

What's the dealio? Does Steve not get the difference, is it a slip of the tongue, or is AI's attribution that Apple said "shipped" in error?


.

[rawhead]

What about all the iPhones that were purchased and gifted for Xmas '07 that have not been activated yet, or were not activated till '08?

I'm sure Apple sold tons of iPhones which ended up as Xmas gifts that were (a) not opened till Xmas day, and hence (b) were not activated immediately for one reason or another.

I was at a Xmas party at my prof's house. There were 10 ppl there, I was an iPhone owner, and 2 ppl there received iPhones that day for Xmas. One of them was my prof., and she has YET to activate it, because she hasn't been able to find the time to sit down and transfer all the data from her old phone to the new one. Obviously anecdotal, but it's a very likely scenario for a lot of people out there.

[quinney]

If indeed there are a lot of iPhones in inventory, that would give more
credence to the other report that Apple has reduced production this
quarter.

[der passant]

According to the another post on AI, ATT added 2.7 million new customers during the last quarter of 2007. See this. During that same period Apple sold 2.3 million phones. This article states that there are only 2 million iPhone users. This is obviously not correct.

Does anyone smell FUD?

[Hattig]

Apple like to keep 5 or 6 weeks inventory in the channel (they mentioned that MacBooks had sold so well they were down to 2 or 3 weeks in the quarterly results thing). At over 100,000 iPhones a week sold worldwide, that accounts for a lot of those missing iPhones. Another 300,000 - 500,000 have probably been unlocked.

[McDave]

Originally Posted by AppleInsider

While European sales have not been detailed in full, they're unlikely to have represented the majority of that remaining amount, the researcher says. If claims of 190,000 UK iPhone sales are accurate and are combined with official results of 70,000 French models and a similar number from T-Mobile Germany, Apple will have sold approximately 350,000 devices outside of the US -- well short of filling the gap left by AT&T's customer base.

The UK figure was fairly recent but aren't French & German figures older guestmates? And weren't sales in France looking better than the UK (with more abuse and less complaining)? This alone would explain another 250,000.

Originally Posted by AppleInsider

The gray market for unlocked iPhones is also unlikely to explain the difference, Sacconaghi says. For its summer quarter, Apple reported 250,000 likely unlocked iPhones in its sales figures, or about 18 percent of the inventory shipped at the time. Assuming about 20 percent of iPhones were unlocked -- a 'generous' amount, the analyst adds -- this would only account for about 750,000 of the 1.4 million phones and leave about 670,000 of the phones "missing in action," according to the note.

Wouldn't that initial unlocked figure be more US based for logistical reasons? Given there are far more GSM networks everywhere else you'd have thought the globally unlocked % over time would be far larger (there are unlocked phones here in NZ and in Aus). While we're guessing 25% would be better - that's another 250,000

Originally Posted by AppleInsider

For Sacconaghi, this points to the potentially worrying prospect that a significant number of iPhones remain in Apple's channel inventory, whether at its warehouses or at retail locations. If all the 670,000 handsets were to land at the carrier-specific distribution points around the world, this would leave as many as 150 iPhones at each store by the start of 2008.

So of the remaining 150,000 that's 33 phones per store. Is that a bad stocking level?

Originally Posted by AppleInsider

"This is negative in two ways," Sacconaghi elaborates. "It indicates end-user demand for iPhone is lower than many investors may think based on Apple's [four million] sales figure... and it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down."

Of course there is one upside - the Analyst gets their name in the press

McD

[Serendip7]

Is it in inventory?

- Steve clearly said "sold" and he said this right before a quarterly report that crushed the stock. If he lied/misspoke/etc etc... Apple is looking at a *monsterous* lawsuit. There's just no way unless "sold" means sold from Apple to ATT for resale... doubt it.

- There's 1 supplier that says Apple reduced their order. Apple most likely got a second source qualified and shifted some orders to them. Apple always tries to have a 2nd source in place in case something happens to the primary. AUO is the 2nd source for the nano LCD screens for instance.


Where is it then?

- Oppenheimer said in the conference call (you should go listen to it) that the 4M # was right up to the keynote of MacWorld. That tells me it includes most of the January numbers. January is when most people start using their returns/giftcards to get something good/better. I'll bet a ton of Razors got traded in for iPhones at ATT. Did Apple sell 1.4M iphones in January... er no... but it sure cuts into the 670,000 missing in action number from the analyst.

- Other people have already pointed out that activated on ATT by 12/31/07 doesn't mean sold by Apple on 12/31/07. Hell, my cousin didn't even get his present until Jan 7 and I was at my mother-in-law's over xmas and didn't get back home until Jan 2nd.


Wish she gave me an iphone though....

Robert

[Investorgater]

Does this help any?

CFO answering analysts' questions:

Peter Oppenheimer

. . . We said that since we only have one channel partner in each of our first four countries, we’re not going to report the inventory but we are going to employ our proven systems and processes to manage the iPhone differently, or effectively.

. . .

Mike Abramsky - RBC Capital Markets

. . . Could you help reconcile the 2.3 million iPhones shipped in December versus over the 4 million announced at MacWorld?

Peter Oppenheimer

Sure. As Steve indicated at MacWorld, the 4 million iPhones were to date as of the keynote and the 3.7 million iPhones that we had sold cumulatively through the December quarter were part of that.

Mike Abramsky - RBC Capital Markets

So would you say that suggests a fairly significant increase in run-rate since December?

Peter Oppenheimer

. . . we remain confident in our goal for 10 million for calendar 2008.

http://seekingalpha.com/article/6111...all-transcript

[PhotoMacUser]

I just got off the phone with McCall Butler who works for ATT PR in charge of Financial Issues.

She confirmed to me that the number of "about 2 million iPhone activations" given in today's conference call was correct. Butler further clarified what those numbers mean by saying that "the number of iPhone activations between June and December 31, 2007 was "about" 2 million. It includes activations of iPhones by new and existing AT&T customers." She also told me that Apple most likely has included iPhones purchased for resale by AT&T in their 4 million iPhones sold number. She suggested contacting Apple about that. Apparently, 40% of the AT&T iPhone activations came from new customers.

McCall could not speak to the number of iPhones on AT&T store shelves and in their inventory. Thank you to McCall for her input on this subject.

Rich Cruse

[Hobbes]

Jobs said sold, not "shipped." If Apple wasn't pleased with the number, they wouldn't try to fudge it (especially right before a conference call), they just said "they're really happy" or something not mention any number at all.

So, I don't buy this anyalst's argument one bit.

The far more sensible conclusion is that something between 25 - 35% of iPhones sold are being unlocked, and this makes a hell of lot more sense when you notice that Apple wouldn't answer how many iPhones are being unlocked in the conference call (check it out - Oppenheimer dodged it completely). What with the very weak dollar, the iPhone only officially available in the US, UK, France, and Germany and nowhere else in the world (yet enjoying global buzz), and it being not at all difficult to unlock.... is that really that hard to believe?

[Ireland]

An they're all anxiously awaiting the 1.1.3 jailbreak

[Alonso Perez]

I see quite a few iPhones, and every one of them is unlocked since there are no official carriers. You can buy them on-line and everything. Of course, you can't upgrade the software.

In the end, I think Apple should not have made this a locked phone. They would be selling a lot more of them. On the other hand, their continuing revenues would be lower. Still, I think owning the market is worth that. It's not like they don't make money on each phone.

I'm still waiting for an officially unlocked iPhone. I'll wait as long as it takes. I'm kind of a late adopter with cell phones, anyway. I was last on my block with one, and still have a trusty V60i.

[anantksundaram]

Unless the claim is that Apple is lying, this is utter crap suggesting some cheap attention-grabbing.

And, Apple is unlikely to be lying about something as important as iPhones "sold," considering how anal they have been on revenue recognition (incl. things such as the $2 charge to activate 802.11N on a $2000 computer, under-reporting the $ value of iPhone revenues, and so forth).

This analyst is clueless.

[DWSterling]

AppleInsider's blog from earlier today states that ATT activated 2.7 million new customers last quarter and Apple said it sold 2.3 million phones last quarter. Add the 1.x million phones sold in August and September and things add up nicely. Look like Apple Insiders should read each other blogs.

[Ireland]

Originally Posted by Alonso Perez

In the end, I think Apple should not have made this a locked phone. They would be selling a lot more of them. On the other hand, their continuing revenues would be lower. Still, I think owning the market is worth that.

Dead right on that one. If they made half what they are making right now by originally selling the phone fully unlocked and it meant owning the market they it would be damn worth it. This iPhone will prove to have a bigger halo-effect than the iPod if you ask me. Although if was originally unlocked Apple wouldn't have gotten the freedom they have got.

[shawksix]

Anecdotal evidence only. In the hundreds of little shop/stalls in Shanghai's big electronics markets, seemingly everyone has iPhones on sale. Not just phone sellers, 50% of all the sellers are offering iPhones. And the amount of iPhones you see on the streets is suprisingly high. If this same sort of proliferation is similar in various ex-US markets, it is easy to imagine where 1 million extra phones are. The main push was about two months ago, with each seller yelling "iPhone" as you walked by, that wave has finished, the phones now have an constant presence in the glass showcase.

A local website called taobao com will show you all of the results for online sellers, type iphone into the search box (site is all in chinese, but easy to understand the layout) and see the results, 20 pages of 40 sellers each.

[KenC]

...but my vague recollection is that Apple does not count a sale thru its own channel, ie Apple Store, until sold, unlike thru 3rd parties, where shipped, is counted. If true, and one only need check the 10K, then the hint that Apple is putting iPhones in warehouses for the Apple Store, is nonsense.

[BuzDots]

an*a*lyst |'anl-ist|
noun
a person who conducts anal inspections, in particular
* an investment expert, typically in the specified field of guessing the exiting size of the human (and other) orifices.
* short for PSYCHOANALYST - one who is a crazy ass.
* a person who analyzes or who is skilled in analysis (see below verb)


Etymology: mid 17th cent.: French analyste, from the verb analyser (one who is actively anal)

[Shogun]

Originally Posted by shawksix

Anecdotal evidence only. In the hundreds of little shop/stalls in Shanghai's big electronics markets, seemingly everyone has iPhones on sale. Not just phone sellers, 50% of all the sellers are offering iPhones. And the amount of iPhones you see on the streets is suprisingly high.

If I were SJ and I knew that Asia was swimming in unlocked iPhones (that can't be updated) I would be holding back on something big until iPhone went full scale in Asia. Then you spring the newness and even the folks with iPhones already (that are unlocked) want to go buy a new one to get the update.

The question is, what would that be?

[jpriatel@interchange.ubc.ca]

This analyst is either a crook, hack or both! How can he calculate what number of phones are unlocked or call 20 % a generous proportion for unlocked phones? There are certainly many here in Canada unlocking phones.

[wizard69]

I don't know about the numbers as really it isn't my cup of tea to dwell on such things, but we only have to look back a few weeks when Apple was restricting sales for only one reason. That was to reduce gray market sales. That is the bulk purchasing of iPhones for resale as unlocked devices.

A company doesn't do such unless it is having problems, it just irritates your legitimate customers.

I think Apple's big problem with iPhone is that they adopted a business model that people are getting very tired of. It is not that big of a stretch to see the slow change in the carriers as a sign of having to adapt to disgruntled customers. The whole idea of supplier locked phones is just irritating a lot of people. Especially when buying higher end phones.

Thus we see the various unlock methods popping up and the jail breaking for user applications. It is unfortunate but Apple simply chose the wrong approach even though it has been common for some time. Locked hardware is just not acceptable on devices that you purchase and own; people are now more aggressive than ever at over coming these unnatural limitations.

Dave

[iGrover]

Well, I have one iPhone that will never be registered/activated. My 6 year-old son is autistic, and after I got my iPhone on launch day he started playing with it and became really good at using the keyboard. Then he found the camera, and then the videos (cartoons) I had loaded, and then the calendar. He is quite proficient on navigating around the phone, and is very excited when he spells out his name and show it to me.

I thought about getting him an iPod Touch when they came out however it did not have a camera so I used my $100 iPhone credit and bought a 4GB iPhone refurb from Apple for a very good price. Then used Jailbreak to unlock it and the rest they say is history. The phone is still on software version 1.01 but so what, it works perfectly for him.

It really helps him with his eye/hand coordination as well as memory (navigation up and down through menus) and it is really a great device for his therapy. He and I are very pleased!

Thanks Apple and thanks to the Jailbreak team!

[shawksix]

Originally Posted by iGrover

My 6 year-old son is autistic, and after I got my iPhone on launch day he started playing with it and became really good at using the keyboard. Then he found the camera, and then the videos (cartoons) I had loaded, and then the calendar. He is quite proficient on navigating around the phone, and is very excited when he spells out his name and show it to me.

That is by far the coolest story I have heard about the iPhone. Hopefully a full SDK will open up even more possibilities.

Look at multi-touch tables, reactable, Jeff Han's projects, the future of more visual tactile interfaces is just starting.

[brian24]

I actually know a couple people who, already have broken their iPhones, and bought replacement iPhones which would essentially go untracked, since they are neither activating a new account, or upgrading to an iPhone plan.

[teckstud]

Originally Posted by Ireland

Dead right on that one. If they made half what they are making right now by originally selling the phone fully unlocked and it meant owning the market they it would be damn worth it. This iPhone will prove to have a bigger halo-effect than the iPod if you ask me. Although if was originally unlocked Apple wouldn't have gotten the freedom they have got.

You've got to have more than one phone to own the market There should be a lower priced phone as well as another version on the high end. Just look what happened to the RAZR and Motorola to see what may happen if you don't change fast enough and add more product. The cell phone industry moves very fast and the iPhone is getting older by the minute. Apple needs more than one phone product in its product line and fast. And one has to be more affordable than $400!!! The public perceives the iPhone as a cellphone first, not an iPod nor PDA, and an expensive one at that.
It's an excellent product but it's competition is so much stronger than MP3 devices vs iPods.

[Ireland]

Originally Posted by teckstud

You've got to have more than one phone to own the market..

True, I just meant in theory is all.

[willrob]

Aplle never reports channel inventory as sold. That's a popular Microsoft technique, which we saw in their last quarter to boost Vista sales numbers. When Jobs said "sold," that is what he meant. Now sold does not only mean sold to a customer; the phones are sold to the European carriers, for example, or to ATT probably (for the units they sell in their shops). ATT reported new customers due to iPhone, not customers who switched to the iPhone while retaining their ATT contract. And of course there are those who were given iPhones for Xmas but have an existing contract with another carrier that they need to run out before activation—who would pay two monthly fees just to turn on their iPhone?

[rawhead]

Originally Posted by iGrover

It really helps him with his eye/hand coordination as well as memory (navigation up and down through menus) and it is really a great device for his therapy. He and I are very pleased!

Have you tried iPhysics? That is by far the awesomest 3rd party app currently available for the iPhone. I held up upgrading to 1.1.3 till today, when the 1.1.3 jailbreak was released to the public, just so that I can keep iPhysics on it for my 4 year old son.. and, I'll be honest, for myself as well.

[Alonso Perez]

Originally Posted by teckstud

You've got to have more than one phone to own the market There should be a lower priced phone as well as another version on the high end. Just look what happened to the RAZR and Motorola to see what may happen if you don't change fast enough and add more product. The cell phone industry moves very fast and ...

The cell phone industry makes a lot of noise about moving fast. Hundreds of models, lots of hype, features piled on, but little real innovation. Apple will be fine with two models and a yearly update. One more compact, sexier (iPhone Air?), maybe a clamshell. One a bit larger, more focused on capacity or screen size.

Some color and memory variations, and that's it. You don't need 50 models. Motorola's problem was not the RAZR, which they exploited for years. It was having dozens of models, yet all mediocre.