Apple's (AAPL) iPhone: 1 Million Is Below Plan
It's not -- not even by Apple's own low-ball public sales goals. Jobs has announced plans to sell 10 million iPhones by the end of 2008 -- a year and a half after launch. But a million iPhones in 74 days works out to a little less than 5 million iPhones per year -- if you're selling them at a consistent rate. Apple sold 270,000 machines in the first two frenzied days it was on sale, which means it took 72 more days to sell another 700,000 phones. That's a 3.6 million annual run rate, which would give Jobs a total of 5.8 million by the end of 2008...
The iPhone hasn't been introduced in Europe yet, and when it does that run rate will certainly increase, as consumers there are comfortable with the idea of buying pricey phones without carrier subsidies. And Jobs obviously intended to cut prices -- eventually -- to boost sales again. But if Jobs was selling enough $600 iPhones, there would be no reason to drop prices by one third after just two months on the market. Lehman Brothers' Harry E. Blount, who had correctly pegged Apple's first weekend sales, predicted this move in July.
How much will that help? Remember that most potential iPhone customers can't buy one no matter what the price is without considerable hardship, because they have long-term plans with other wireless carriers other than AT&T. You may be more inclined to buy a $400 iPhone than a $600 iPhone. But if you're locked up with a two-year Verizon contract, you're not going to buy one at any price. We hear, second-hand, that Apple is running 25% below their internal sales goals, and we're in no position to confirm that. But we think that if the iPhone was on track, we wouldn't have seen a price cut this early, and we would have heard about 1 million units even earlier.
More Analysis: Impact of iPhone Price Cut: Apple Needs To Sell Nearly 2X As Many
See Also: How Much Would Apple's Wireless Dreams Cost?, Four Big Questions About Google's gPhone
Of course as we've seen, "some people" even forget the simple fact that the holiday quarter can amount to almost 50% of sales for the year, and the iPhone has two of them to cross over before hitting the stated mark. AND that "launching in other markets" has the tendency to change the rate of sales, so that extrapolating based on one market is foolish.
Tom Ross hit it on the head: there will be a steady flow of new customers for the next two years. I'll be one of them. Add the vast European and Asian markets, lower prices, and better features in the 2008 models.
What needs explaining is the bizarre notion that not selling a billion phones, to every cellphone owner on the planet, immediately, was somehow a failure. Did Steve really get expectations THAT high?
I suspect that many non-smartphone owners will be thinking on similar terms. That and the Europe-Asia markets can add a lot to your current prediction.
Next year we can expect some organic growth as well the addition of more markets (Canada, Italy, Spain and smaller euro countries, Australia and possibly Asian markets), a 3G iPhone and an iPhone nano without the smartphone features entering lower price regions.
It's fun to speculate about purported internal sales goals, but the fact is that Apple has beaten the official 90 days sales goal by 20 days. So why not expect them to beat that other official sales goal of 10 million units in 2008.
The "people can't get out of their contract" argument won't get you very far. Given the fact that a normal contract runs 730 days (2 years), 10 % of US mobile phone customers already had the chance to switch to the iPhone without penalties, and it's going to be another 12,5 % every quarter. This is not a particular issue of the iPhone, so it shouldn't belong into this analysis. If anything, this suggests that Apple can bank on steady sales in the next 7 quarters to all those people who are waiting to get out of their contract.
GSM subscriber breakdown Q1 2007.
USA/Canada: 94 million (with Canada being a big chunk of that)
Europe: 793 million.
Worldwide: 2.2 billion.
http://www.gsmworld.com/news/statistics/index.shtml
It passed the 50 million sales mark 18 months after launch. (Granted the last year-or-so of its' sales had it down in the $199 range.)
Granted the RAZR also included more carriers and more markets for more of its' first 18 months, but the iPhone is a lot more compelling than "a pretty, slim cell phone."
Just where do your musings line up with reality?
I'll predict 17 million sold by the end FY 08, as I believe their sales to be exponential, especially with the very recent price decrease and Europe coming on board in the 4th quarter with a 3G version.
2) Apple will release in Europe (as you note) and Asia well before Dec 2008. This could easily increase the run rate by 2x or more.
3) Apple will likely come out with a cheaper version of the phone (e.g., "iPhone Nano") well before Dec 2008. This could again lead to another doubling or tripling of the run rate.
Fact: Apple is notoriously conservative in its guidance.
Prediction: Total iPhones sold will easily exceed 10 million phones by Dec 2008.
Implication: Dan Frommer will have given a prediction that looks bad both ex ante and ex post.
Your apple coverage is doesn't have nearly the depth of, say, daringfireball.net.
And with the expected refreshes and 2 seasons of holiday sales -- which is of course when iPods fly off the shelves -- I'd say there is very good comfort in hitting if not exceeding the numbers.
Rumor and speculation just keeps more of a spotlight on this product. Already a ton of developers are checking out this platform; we're covering it with a special seminar 'iPhone and Beyond' for content executives next week.
Right now there's no compelling reason for me to buy one - my iPod and run-of-the-mill motorola phone do just fine. But rolling out the next great Apple innovation as iPhone software could have me (and the "missing" 4.2mm other) changing our minds fast. What will it be? Slingbox compatability? Scratch-and-sniff icons? I don't know - but just as a gaming console can really take off with the release of a blockbuster title, iPhone too has that potential with the release of killer software.
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