Author's Note:(This article has been revised. Previously, I had used a lower number for Q4 2011 iPhone sales. This number led me to overestimate Apple’s likely iPhone sales for Q1 2013. Upon correcting the error, my estimate came in much lower and led me to change my conclusion. This article is updated with the corrections.)
As of today, we already got a good set of numbers from Verizon (VZ) and AT&T (T) towards estimating how demand is stacking up for Apple's (AAPL) iPhone 5. At this point, there are two conclusions. One is that Apple is on track towards easily beating the broad sales expectations for iPhones in general. The other is that the iPhone 5 looks rather weak.
First, The Numbers
From an AT&T release, we learned that AT&T sold 10 million smartphones during Q4 2012. If we assume that 80% of these were iPhones, we get an estimate for 8 million iPhones sold by AT&T.
We also know that Verizon sold 9.8 million smartphones, of which 6.2 million were iPhones. From these, VZ said half were iPhone 5, or 3.1 million. Since UBS also indicates sales elsewhere to be split around 50/50 regarding the iPhone 5 and others models, we will also estimate that half of AT&T's iPhones were iPhone 5, or 4 million.
So at this point, we have estimated that AT&T and Verizon put together sold 14.2 million iPhones, and 7.1 million iPhone 5s. Last year in the same quarter, also including an iPhone launch (the 4S), Apple had sold 37.04 million iPhones. Of those, AT&T and VZ sold 7.6 million plus 4.3 million units, or 11.9 million units – 32.1% of the total sold. If AT&T and VZ kept about the same share of total iPhones sold in this latest quarter, then their sales would imply a total for the iPhone of 44.2 million units. Since the consensus is for Apple to sell around 48 million iPhone units, one would say that right now the numbers seem to be coming in below expectations.
However, as UBS already stated, there seems to be a shift in the mix of iPhones being sold, with the latest, greatest, iPhone 5 losing ground, and now only accounting for around 50% of sales. This is confirmed by Verizon's numbers. At 50%, beating the overall consensus number for iPhones sold still would put the iPhone 5 at only 29.2 million units, which seems rather low when compared to rumors of 65 million in orders for displays, and would help explain the rumors that these orders are being slashed in half.
Some are giving weight to the rather light iPhone 5 sales, and these might have some significance in terms of the customer’s perception of the need to move to the latest and greatest. It also seems from Verizon and AT&T’s sales that Apple might fail to exceed the consensus iPhone sales targets and quite possibly, the EPS estimates as well, when it reports earnings tomorrow.
It’s hard to predict what the reaction of the market will be. On one hand, one has a deeply punished cheap, equity. On the other, there will be tales of weakening demand for the flagship product (the iPhone 5), mix and margin worries, possibly weaker guidance and a very high call open interest for February. I had taken a long position in AAPL due to an error in my calculations. Having seen the error, I now draw the opposite conclusion, that Apple has risk in meeting the consensus. I have sold out of my position in the after-hours session, taking advantage of Google’s and IBM’s earnings.