Thursday, January 24, 2008

Why AT&T was mad

AT&T did their earnings call today and added a little bit of information to the iPhone sales picture.

While Apple had sold 3.7 million iPhones as of Dec. 31, despite AT&T’s US exclusive it activated only 2 million iPhones. AT&T execs listed several reasons for the discrepancy: phones sold overseas by foreign carriers (IMHO small), bought in the US to take overseas (ditto), product purchased for inventory but not sold to end users (unknown).

What's left would be phones purchased in the US but not activated on AT&T either because they weren't activated or they were activated with T-Mobile, which seems like it would be at least 1/3 of the iPhones Apple sold. This would sure explain why AT&T's CEO was mad at Apple. Of course, if these phones aren’t being activated with AT&T, then Apple is losing the half of its profits associated with the revenue share.

Two other tidbits: iPhone ARPU nearly double that of others. And the run rate in December was twice that of October and November (suggesting that Randy Stephenson’s attempt to sabotage iPhone Xmas sales didn’t work). If there were no overseas partners for the iPhone, this would work out to be about 19,000 units/day before the Christmas season (consistent with late Sept. sales) and 38,000 units/day during the Christmas season.

However, this doesn't allow for European partners. The FT estimates that O2 sold 190k phones in the UK (just shy of its 200k goal). If T-Mobile (DE) and Orange (FR) together sold the same amount, that would mean a US run rate of 15-16k/day in Oct-Nov and then ca. 30k/day during the Christmas season.

As noted in yesterday's table of iPhone sales, public figures suggest 17k/day since Christmas. Given all the pent up demand, I'd be shocked if they get much above 15k/day with existing channels before introducing a new product (or making a sharp price cut, which seems unlikely). That would mean FY2008 Q2 sales of about 1.5 million iPhones (vs. 2.3 million in Q1 and 1.2 million in the quarter ending Sept. 29).

Rumors have the 3G iPhone in June-July; knowing Apple, it will be in June (or earlier) to make the quarter look good. They can’t do Japan without a 3G phone (because Japan has no 2G GSM networks). They can't just introduce the 3G in Japan because that would kill sales of the 2G iPhone. My guess is that they will introduce a 3G iPhone (with more memory and a bigger screen) somewhere near the 1 year anniversary, and cut the price of the 2G phone to $300 or less.

This strongly points to an overseas introduction during the next 2.5 months to make the FY2008 Q2 figures look better. Rumors suggest China is not soon, and Japan awaits the 3G phone. What's left would be Spain, Italy or maybe Canada, although none would have an impact comparable to the US or even the UK.

Selling 16.5k phones/day would only get Apple to 6 million for the year, and they Wednesday they again promised 10 million. Suppose they get a huge uptick through a big announcement June 1: 3G, Japan, China. That would mean 2.5 million (16.5k/day) for the first five months, and 7.5 million (35k/day) for the last seven months. China is bigger than the US but the pool of $400 iPhone buyers is probably smaller. So, as I said yesterday, Steve Jobs must have some additional plan to accelerate iPhone sales in 2008.

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