Monday morning, the saga of the missing Apple (AAPL) iPhones continues, but with a new focus. First, a quick review. At MacWorld on January 15, Apple CEO Steve Jobs announced that had sold 4 million iPhones to date. Through December 31, the total was 3.75 million. Then on Thursday, in a post-earnings conference call, AT&T (T) CFO Rick Lindner said Ma Bell had registered about 2 million iPhones through December 31. That raised an obvious question: what happened to the other 2 million iPhones?
In a research note that got huge amounts of attention, Bernstein Research analyst Toni Sacconaghi last week concluded that there were large numbers of iPhones in inventory at AT&T and the company’s European carriers. Other analysts, notably Piper’s Gene Munster, were less concerned.
This morning, there are some additional tidbits to add to the story, including a modified theory from Sacconaghi. Here are the key points in Sacconaghi’s latest report:
- Sacconaghi says his original estimate on total European iPhones sales was a bit too high; he says the total through December 31 was likely 315,000, rather than the 350,000 he previously estimated.
- He says investor suggestions that there may a large number of iPhones purchased as Christmas presents but not yet connected are not likely accurate. He notes that carrier experience is that people almost always activate phones within a few days; he also notes that there is a 14-day return period for the iPhone.
- He now thinks that about 1 million phones have been sold and unlocked to be used on carriers other than those authorized by Apple, or about 27% of units sold through year end. He had previously been estimating 15%-20% of all units were “unlocked.”
- Sacconaghi says that leaves about 480,000 units in inventory. Given that he sees first quarter units down about 40% in the U.S. and about 30% in Europe, he says that comes to about 8 weeks of inventory in the U.S., and over 8 weeks in Europe. He notes that AT&T typically carriers about 4-6 weeks of channel inventory, including 10 days worth in its stores and the rest in warehouses.
- He says the unlocked phones are being used in countries where the device is not officially sold. I would note that if you read the comments on my previous postings, you will see many people noting that they have seen iPhones in use in many places where there are no official carriers, including throughout Asia.
- Sacconaghi notes that unlocked iPhones are a problem for Apple, since the company gets no carrier payments for their use. He estimates that unlocked iPhones generate 50% less revenue and 75% less profits for Apple than phones registered with authorized carriers. He estimates that if the company reached its 10 million iPhone goal for 2008, but 30% are unlocked, it will cost the company over $500 million in revenue - 37 cents a share in profits - in each of the next two years. But he notes that if Apple somehow can stop the use of unlocked iPhones, unit sales will be lower, and “Apple would forego even more revenues and profits.”
- Sacconaghi adds that the unlocked phones issue may make it difficult for Apple to sign additional carriers to revenue sharing deals - and he says it will make it hard for Apple to lower the price of the iPhone to boost volume. A lower price, he says, could drop the margins on unlocked iPhones to “unacceptable levels.”
- Meanwhile, he also says the company’s 10 million unit target “is aggressive without major price cuts of new models, especially if Apple hopes to maintain the rick economics of the current iPhone business model.”
One last note here: Sacconaghi also noted, as he has previously, that he has become incrementally more positive on the stock given the pullback in the shares. He maintains a $165 price target.
Also this morning, RBC Capital’s Mike Abramsky weighed in on the situation, and came with up with similar data on where the iPhones are: he estimates 25%-30% of phones sold have been unlocked. But he contends unlocked iPhones “are financially positive for Apple,” in that they “bode well for global iPhone demand.”
And one more: Needham’s Charlie Wolf suggests Apple could have sold a lot more iPhones had it not introduced the iPod Touch. “What investors are missing is the role Apple’s iPod Touch played in siphoning off iPhone sales in December,” Wolf writes. “The iPhone and the iPod Touch are close substitutes.” Well, I’m not sure that is quite true, given that the Touch lacks both a phone and a camera. Wolf, however, thinks the company would have sold 1.5 million more iPhones in the December quarter had it not introduced the Touch.
Apple is up $2.35, or 1.8%, to $132.26.
