Apple (AAPL) made two mistakes with the iPhone which hurt growth.
The first was to sign a five year exclusive contract with AT&T (T). It might have been the best option available to Apple at the time, but it is turning out to be a big bottle neck to growth in the U.S. and globally. 2 million of the 4 million iPhones sold through AT&T did not register on their network, but turned up in other countries, indicating a lot of pent up demand.
Second, the iPhone is cannibalizing sales of the iPod touch. A 16GB iPhone costs the same as a 32GB iPod Touch ($499). The iPhone has half the space but comes with a camera, a phone and the convenience of not having to carry two devices. The $200 price drop on the iPhone, although necessary, was probably a bit hasty and was not without consequence. Previously, Apple played a wonderful balancing act and it was not uncommon for an individual to own the iPod Shuffle, the iPod Nano and the iPod Video at the same time, but things got a bit mixed up as of late.
Just when customers had gotten used to 60GB of space and lots of video storage, Apple introduced the iPod touch, built for an even better video viewing experience but a mere 16GB of storage (recently upgraded to 32GB)-- the same as the Nano. The fog should clear up in another 2-3 quarters as Apple clears its pipeline and maximizes utility from older models.
Disclosure: Author holds a long position in AAPL
