25 July 2007

iPhone Sales Numbers - BEFORE Q3 results

I'm writing this BEFORE Apple announces today's earnings, but AFTER the crazy market/media reaction to news that AT&T "only" activated 146,000 iPhones by 30th June.

What IS amazing is that in 30 hours, from 6pm Friday to midnight Saturday, 146,000 iPhones were purchased, taken home, unboxed, plugged into a computer, and then successfully activated. Had anyone suggested such numbers even a day or two before the iPhone was released, they would have been considered an optimist. Now, some are comparing the 146,000 number to some mythical 1million figure some analysts ended up speculating on.

As far as I can recall, I have seen few analyst projections of 1million iPhones and certainly not even in the few day initial period. I have seen numbers as low as 50,000 (originally from Shawn Wu of American Technology Research, and general Apple bull) to perhaps 350,000 from Goldman Sachs. Some of those numbers were then doubled AFTER the weekend (to 700,000 in the case of Goldman Sachs).

But remember here, the weekend includes a Sunday - only the second full shopping day the iPhone was on sale. How many iPhones could not be activated at first (certainly a few by some rumours)? How many iPhones did not get activated by the Saturday evening because the person hadn't had time, was keeping the iPhone as a present, or whatever other excuse? How many iPhones were ordered from the online stores on those days for later delivery?

And, what is success anyway? Is failure just the inability to hit whatever highest number some analyst (perhaps a naysayer anyway) set just to create a headline?

At 146,000 iPhones sold in 30 hours, Apple and AT&T created a revenue stream of $292m to share between them over 24 months.

Today, Apple will report its own financial figures for the last quarter (its financial close period which began BEFORE the iPhone was released is the fundamental reason it has not been legally able to comment on sales before this time). Apple may also (like AT&T) choose to report just the 30 hour period (or perhaps 33 hour period in its case being based on the West Coast). But, even in this period it will include over the counter sales - not activations. It may also account for sales via the AT&T store differently - as these essentially are sales as a wholesaler of the product.

My wild guess at this point is that Apple will report sales of around 225,000 or more for the 30 hour period. And, if they are to report sales for the first week, or first month (we're just 2 days away from that point), we will genuinely see that they will have between 400,000/700,000 and 500,000/1million iPhones in people's hands today (firstweektarget/firstmonth target). I suspect Apple's control of PR extends to its agreement with AT&T and allows it to publish the first important headline numbers for sales.

Sales of more than 500,000 iPhones will be a 2 year revenue stream of at least $1billion between Apple and AT&T (they are currently the sole retailers - so no other retailers to split with). Not bad for one month!

Contrast this with Zune and XBox360.

Assuming Zune sales so far of 1.2m, and even assuming full retail price of $249, this is $298m in revenue - almost exactly equal to the revenue from the 146,000 AT&T activations. Only this has taken Microsoft not 30 hours, but more than 8 months. It is also a widely held belief that Microsoft has not SOLD 1.2m Zunes, but shipped them. Many remain unsold on shelves. And, there has also been some significant discounting from the $249 price, to say nothing of the retail margin.

XBox360 has been with us for about 20 months. 11.6m units shipped (but not necessarily sold). Assume price of $299 again, and we reach $3.468b. Then take the $1.2bn cost of repairs announced recently out of that - and we have a number approaching $2bn - for 20 months!

I know which company I would be betting on today.

We will see crazy headlines today, and we will see unpredictable market reaction whatever the numbers. But what is already clear is that Apple has a phenomenal hit on its hands. Reviews have been overwhelmingly outstanding. Sales have been very robust indeed - whatever these sky high forecasts make you think the boundary of success is. Apple is only to be praised for seemingly being able to just about keep up with demand (something in the past it has not been good at, with fair criticism from the same quarters who now say any unsold stock is a failure!) Any commentary on today's numbers that doesn't recognised the success for what it is - both in technical and business terms is very delusional (or in the pockets of some of Apple's and AT&T's competitors).

I'll be writing on the financial numbers after they come out. I'll be paying particular attention to what the sales of iPods and Macs have been in the last 12 months. But, if the market reaction is negative today, look at this as your best time to pick up Apple stock for some time.

Disclosure: the author holds 600 shares of Apple, and last time he bought shares was 11th July 2006 - a little over 12 months ago when they were as low as $54. I hope you followed my advice then!.

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