4 Million iPhones Sold? Really Steve?

Here is an article that gives serious doubt to Apple's (AAPL) recent numbers:

The talk among Apple (AAPL) watchers today is Toni Sacconaghi’s dogged pursuit of the 4 million iPhones Steve Jobs claimed to have sold as of Jan. 15, the date of his Macworld keynote speech.

AT&T (T), the iPhone’s exclusive U.S. carrier, reported yesterday that it had activated “just at or just slightly under 2 million” iPhones. That’s quite a discrepancy.

Sacconaghi, Sanford Bernstein’s Apple specialist, did the math and concluded in a report to clients that there are roughly 1.4 million iPhones “missing in action,” either unlocked or sitting in inventory. Assuming that 20% of those iPhones were purchased to be unlocked (a generous assumption given that a jailbreak for the latest iPhone firmware was only released yesterday), he believes that there are at least 650,000 gathering dust somewhere — in warehouses, perhaps, or in closets, as unwanted Christmas presents waiting to be returned.

Here’s how he gets that number:

• 3.75 million iPhones sold as of Dec. 29 (per Apple’s Q1 report)

• minus 2 million iPhones activated through AT&T as of Dec. 31 (per AT&T)

• minus 350,000 iPhones sold in Europe via O2, T-Mobile and Orange

• minus 750,000 iPhones purchased to be unlocked

• equals 650,000 unaccounted for.

Sacconaghi concludes:

This is negative in two ways: (1) it indicates end-user demand for iPhone is lower than many investors may think based on Apple’s sales figure; and (2) it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down.

Of course, compared to other Apple analysts, Sacconaghi is something of a bear. One day before the Q1 earnings report and the subsequent run on Apple shares, he went out on a limb and predicted that the company would sell only 7 million iPhones in 2008. That’s considerably less than the 10 million target Steve Jobs set — a goal COO Tim Cook said on Tuesday he remained “very confident” they would hit.

Most Apple watchers shared Cook’s confidence, given the 4 million number Jobs had trotted out at Macworld. Today they’re singing a different tune.

“Apple might have a demand problem,” writes Tom Krazit at CNET.

Russell Shaw at ZDNet says the iPhone is at a “crossing the chasm” moment, stuck between early adopters and the mainsteam, and predicts that to survive its price will have to come down to $299 by the end of May at the latest.

Ewan McLeod at the U.K.’s SMS Text News waxes positively elegiac in a post entitled “The Apple iPhone will only ever be a bit player”:

The geeks have all bought one and many have got theirs unlocked. The Nike wearing Soho crowd have splurged the cash. The wannabes and the I-must-have-that crowd have weighed in, swapped networks and got their devices. But that’s it. There’s a ton of people all sitting staring at the iPhone and — SADLY — (this is the bit that’s winding me up), turning their backs and walking away. (link)

This may be premature. A lot could change in the next 50 weeks. New apps. A 16 GB iPhone. A 3G model. New price points. New markets in Canada, Thailand, and maybe even China.

But one thing is certain: having promised and repromised to sell 10 million iPhones in 2008, there will be hell to pay in 2009 if Apple falls even a little bit short.

Has anyone heard this stuff before? I really like the "lower the price to $299" comment. Didn't I say that in May of 2007?

Disclosure ("none" means no position): Sold Apple $280 July calls when stock was at $165.

Comments

[User 142127:]

I don't know what these guys are talking about. Everywhere I look and or turn around I see an iPhone. I don't know what the deal is but there is suddenly a swarm of people on these sites attacking Apple. Is it because they all bashed the company a few years ago and know look like ***holes? I, as a stockholder, I'm seriously getting pissed at these Apple bashers that have NO PROOF of what they just tout about Apple.

2008 Jan 28 03:32 AM

[Thoughtful:]

This is last week's FUD--Why does he get to re-hash some else's article and republish negative SPECULATION again this week? I guess the person who told me that there are no editors at this site are right. Just another blog....

2008 Jan 28 03:46 AM

[yet another...:]

What the hell, bring on the bears. If the stock hits $90 on the way to $250, all the better.

I for one will ABSOLUTELY buy an iphone. When the price is $399, not $399 + early termination fee on my current contract.

The obvious answer is that a lot more phones have been bought for unlocking than estimated. The best evidence is Apple, restricting sales. That's what you do when you want your inventory to go to the most profitable customers (subscribers), not when you're stuffed with inventory. (And... duh... Apple is a major retailer of the iphone and its inventory counts as inventory NOT sales. Basic GAAP.)

And it is doubtful that Steve Jobs would have used the number if it wasn't true... basically committing securities fraud when he need not have said anything.

But enough of that... there's a bear raid on a company posting breathtaking results and growth. Let's the sellers reign. I'm not on margin and I ain't selling. Volatility is how 20% gains can become 100% gains.

Get short now!!!

2008 Jan 28 04:01 AM

[Jon T:]

Why doe all these nutters insist on assuming that Apple and Steve Jobs are just like Microsoft. Just because Bill Gates has been fiddling numbers and stuffing inventory into the chain with Zune and Xbox does not mean Apple behaves in the same way.

Time will tell. iPhone has been a huge hit already, and is going on to even greater highs.

2008 Jan 28 04:35 AM

[imthewiz:]

What did you get for those 280 calls when stock was at 165??

2008 Jan 28 04:38 AM

[gringo:]

I have seen plenty of iphones here in Brazil for example that were purchased locked but have been enabled for use here-in fact I am getting one for myself; your descrepancy numbers are no big deal........

2008 Jan 28 05:41 AM

[digivision:]

the Iphone is selling like hot cakes outside the us they are sold unlocked by smalller companies in India , China and all over Europe
the analysts are underestimating the black market

2008 Jan 28 08:13 AM

[Richard Alv...:]

His unlocked number is way off. It closer to 25% -30%

2008 Jan 28 08:26 AM

[johnacw29:]

People are not factoring the way christmas gift giving of iphones may play out in activations. I gave my mom an iphone for christmas and she wanted to wait until the new year to activate it. I think about 10% of all iphones sold in Q1 were christmas gifts (which I think is a conservative number) and you will see a spike in new year's activations with AT&T on January 1. I think there isn't as many unlocked phones in the US as in Europe. Consider the alternative - T-Mobile not very attractive.

2008 Jan 29 02:28 AM