Apple's Gift Card sales may understate iPhone shipments

***AppleInsider*** · 12-10-2008, 10:16 AM

Giving the gift of iPhone this holiday season requires that customers purchase a gift card from Apple rather than the handset itself, a process that may understate the company's December quarter shipments as a result.

Speaking to clients in a research note Wednesday, Kaufman Bros. analyst Shaw Wu said he believes Apple is seeing a strong reception to the gift card program, which simplifies the iPhone buying process because shoppers don't need to wait in line for the handsets to be activated or provide any personal information.

"While Apple gets to collect cash up front, which improves cash flow, Apple cannot recognize the sale of an iPhone until the customer activates it," he explained. "The risk here is that the customer will likely activate post-Christmas; therefore revenue and units won't likely be recognized until the March quarter."

In total, Wu estimates several hundred thousand to one million units could be impacted by the program, which would in turn serve to boost iPhone shipments during Apple's March quarter -- historically one of the company's weakest seasonal periods.

Based on these observations and recent checks into the iPhone maker's supply chain, the analyst is modeling for shipments of 6 million units during the three-month period ending December, or about 10% less than the company's initial build plan had suggested. Apple shipped 6.9 million units last quarter.

"With Apple not providing unit guidance and the difficult macroeconomic backdrop, investor expectations seem to vary from 5 million to 7 million units with most toward 6 million to 6.5 million," he said.

Wu also continues to believe that Apple will inevitably enter into the sub-$100 iPhone arena but said the time is not yet right, citing channel conflict and a need for uniform pricing.

"As we mentioned, the price of the hardware that customers pay is a minor part of the economics. It's really about the subsidies, revenue share and royalties," he said. "iPhone is one of a few cell phones out there with the ability in driving higher average revenue per user for carriers; therefore making it a strong candidate for greater subsidies."

Wu continues to rate Apple shares a Buy with a 12-month price target of $120 per share.

[ View this article at AppleInsider.com ]

BlackSummerNight · 12-10-2008, 10:40 AM

Or it could understate iPod shipments or anything else that Apple sells? God how do this man keep his job.

RichL · 12-10-2008, 10:56 AM

Of course this wouldn't be as much of a problem if AT&T sold a pre-pay version of the iPhone, like O2 UK does.

wordwise · 12-10-2008, 11:13 AM

...it can't be used for other devices. Though it's still quite possible Apple can't 'recognize' the revenue from the iPhone until the actual phone is activated, they'll know internally how much revenue it's worth...

wbrasington · 12-10-2008, 11:20 AM

Quote:

Originally Posted by wordwise

...it can't be used for other devices. Though it's still quite possible Apple can't 'recognize' the revenue from the iPhone until the actual phone is activated, they'll know internally how much revenue it's worth...

No matter when they admit the sale occured, with the sale of the gift card OR the activation of the iPhone itself, they do NOT 'recognize' the revenue from the iPhone like other sales.
Because they spread it out, we're only talking about one month in revenue and we're talking about it being delayed for a month.

None of this matters to anyone looking at revenue, it only matters to people concerned about the number of units sold/delivered.

aaarrrgggh · 12-10-2008, 11:32 AM

I think this effect is minimal compared to the impact of "stuffing the channel" for a Walmart roll-out. There are still 6 days left in the quarter in which almost everyone that gets an iPhone gift card will use to redeem their phone.

BTW, when did Shaw Wu move from ATR?

Foo2 · 12-10-2008, 11:32 AM

The gift card can only be used for the iPhone? I would be p*ssed if Apple lowered the price of the iPhone before I exchanged the card.

sflocal · 12-10-2008, 11:56 AM

Quote:

Originally Posted by Foo2

The gift card can only be used for the iPhone? I would be p*ssed if Apple lowered the price of the iPhone before I exchanged the card.

Why be upset? Someone else spends the money to buy you the card which in turns gets you the iPhone. You would not be out any money. Any person that spends that kind of money to buy you that as a gift must not be too concerned about the value of that purchase dropping.

It is after all, a gift to you for being such a wonderful person. Not something to place a dollar value on right?

Looks like someone isn't getting one for Christmas!

BlackSummerNight · 12-10-2008, 12:04 PM

Just saw a actual gift card. A decent idea, but not even close to waking up to a new iPhone under the tree.

iVlad · 12-10-2008, 01:39 PM

Agg who cares, Apple already reached their goal. These investors should worry about their stocks in car companies, not Apple!

Ireland · 12-10-2008, 01:59 PM

I just eBay'd an iPhone 3G. Now I own two!

Don't jealous much

, I'm giving the other one away!

(to a work colleague)

Foo2 · 12-10-2008, 02:07 PM

Quote:

Originally Posted by sflocal

Why be upset? Someone else spends the money to buy you the card which in turns gets you the iPhone. You would not be out any money. Any person that spends that kind of money to buy you that as a gift must not be too concerned about the value of that purchase dropping.

Now that's just plain silly thinking. Even gift-givers want to spend money wisely.

Quote:

It is after all, a gift to you for being such a wonderful person. Not something to place a dollar value on right?

Looks like someone isn't getting one for Christmas!

Why would I need another iPhone?

DimMok · 12-10-2008, 05:47 PM

give me the cash....gift cards are terrible.

nvidia2008 · 12-10-2008, 06:23 PM

Quote:

Originally Posted by Ireland

I just eBay'd an iPhone 3G. Now I own two!
Don't jealous much

, I'm giving the other one away!
(to a work colleague)

Ireland do you want a free iPhone 3G White 16GB (ATT locked)? ... I have this as a spare one and I want to give it away. It's US AT&T locked though so it needs to go to someone in the US and eBay is just, for me, a mess right now....

Any takers? Who wants a free iPhone 3G White 16GB (ATT locked)? ... It will be my one donation for Christmas this year. I posted a thread about it but not many viewed it. Since this is a news thread hopefully I will have some takers.

Apologies to moderators for the cross-posting, but we are talking about gifts of iPhone3Gs, no?

Ireland or others that are interested, PM me. I need to Fedex this to you if you want this by Christmas so PM me as soon as possible. No, this is not a scam, no, my account has not been hacked or anything.

I prefer to give this away to Ireland, Melgross, Slewis, etc. etc. but open to anyone, first person to PM me and I validate the request as genuine.

Pic here:

Yes it sounds too good to be true but it is true, again, no, my account has not been hacked, y'all know me... Some of you also know my actual name with which I used to post previously (up to 7,000+ posts)...

Yes, FREE iPhone 3G, you won't have to pay for postage, just *customs tax* if any when it arrives in the US/etc... if any.

12-10-2008, 10:16 AM	#1
*AppleInsider* Kasper's Automated Slave Join Date: Nov 1997 Posts: 6,151	Apple's Gift Card sales may understate iPhone shipments Giving the gift of iPhone this holiday season requires that customers purchase a gift card from Apple rather than the handset itself, a process that may understate the company's December quarter shipments as a result. Speaking to clients in a research note Wednesday, Kaufman Bros. analyst Shaw Wu said he believes Apple is seeing a strong reception to the gift card program, which simplifies the iPhone buying process because shoppers don't need to wait in line for the handsets to be activated or provide any personal information. "While Apple gets to collect cash up front, which improves cash flow, Apple cannot recognize the sale of an iPhone until the customer activates it," he explained. "The risk here is that the customer will likely activate post-Christmas; therefore revenue and units won't likely be recognized until the March quarter." In total, Wu estimates several hundred thousand to one million units could be impacted by the program, which would in turn serve to boost iPhone shipments during Apple's March quarter -- historically one of the company's weakest seasonal periods. Based on these observations and recent checks into the iPhone maker's supply chain, the analyst is modeling for shipments of 6 million units during the three-month period ending December, or about 10% less than the company's initial build plan had suggested. Apple shipped 6.9 million units last quarter. "With Apple not providing unit guidance and the difficult macroeconomic backdrop, investor expectations seem to vary from 5 million to 7 million units with most toward 6 million to 6.5 million," he said. Wu also continues to believe that Apple will inevitably enter into the sub-$100 iPhone arena but said the time is not yet right, citing channel conflict and a need for uniform pricing. "As we mentioned, the price of the hardware that customers pay is a minor part of the economics. It's really about the subsidies, revenue share and royalties," he said. "iPhone is one of a few cell phones out there with the ability in driving higher average revenue per user for carriers; therefore making it a strong candidate for greater subsidies." Wu continues to rate Apple shares a Buy with a 12-month price target of $120 per share. [ View this article at AppleInsider.com ]

12-10-2008, 11:13 AM	#4
wordwise Registered User Join Date: Oct 2007 Location: Canada Posts: 19	It's an iPhone gift card ...it can't be used for other devices. Though it's still quite possible Apple can't 'recognize' the revenue from the iPhone until the actual phone is activated, they'll know internally how much revenue it's worth...

12-10-2008, 01:39 PM	#10
iVlad Registered User Join Date: Jul 2007 Location: Reston, VA Posts: 367	Who cares Agg who cares, Apple already reached their goal. These investors should worry about their stocks in car companies, not Apple! iWant new iProduct

12-10-2008, 01:59 PM	#11
Ireland Registered User Join Date: Feb 2006 Location: Ireland Posts: 8,557	I just eBay'd an iPhone 3G. Now I own two! Don't jealous much , I'm giving the other one away! (to a work colleague) Collecting my SSD iMac Fry-die. :D

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12-10-2008, 10:40 AM	#2
BlackSummerNight Registered User Join Date: Sep 2006 Posts: 535	Or it could understate iPod shipments or anything else that Apple sells? God how do this man keep his job.

12-10-2008, 10:56 AM	#3
RichL Registered User Join Date: Dec 2007 Location: UK Posts: 330	Of course this wouldn't be as much of a problem if AT&T sold a pre-pay version of the iPhone, like O2 UK does.

12-10-2008, 11:32 AM	#6
aaarrrgggh Registered User Join Date: Apr 2006 Location: Paradise Posts: 399	I think this effect is minimal compared to the impact of "stuffing the channel" for a Walmart roll-out. There are still 6 days left in the quarter in which almost everyone that gets an iPhone gift card will use to redeem their phone. BTW, when did Shaw Wu move from ATR?

12-10-2008, 11:32 AM	#7
Foo2 Registered User Join Date: Aug 2007 Posts: 594	The gift card can only be used for the iPhone? I would be p*ssed if Apple lowered the price of the iPhone before I exchanged the card.

12-10-2008, 12:04 PM	#9
BlackSummerNight Registered User Join Date: Sep 2006 Posts: 535	Just saw a actual gift card. A decent idea, but not even close to waking up to a new iPhone under the tree.

12-10-2008, 05:47 PM	#13
DimMok Registered User Join Date: Jun 2008 Posts: 170	give me the cash....gift cards are terrible.

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