Technology

About That iPhone Shortage


The most likely explanation: Apple is gearing up for the next version of the popular handset or it underestimated demand—or both

Shawn Zade, who runs a small company called Wireless Imports in New York, is among hundreds of businesspeople who have tried to make a buck from purchasing and reselling Apple's iPhone at a higher price. But his job has gotten so hard lately that he may exit the iPhone resale business altogether.

The departure would be a casualty of what analysts and salespeople say is a widespread shortage of iPhones. "We'd be calling every store, they'd be sold out, sold out, sold out," Zade says. In the past two weeks, some Apple (AAPL) stores in New York got no iPhone shipments for several days in a row, he says. And when shipments do arrive, the phones are snapped up within minutes, he and others say.

Shrinking Inventory

The scarcity isn't confined to New York City. On Apr. 3, an Apple store in Miami, Fla., was sold out by early afternoon. Apple outlets in San Francisco and the Shadyside area of Pittsburgh only had the 8-gigabyte units, and sales reps were advising customers to inquire at stores run by Apple partner AT&T (T) for the 16-gigabyte model. In the quarter that ended Mar. 31, the average Apple store was out of stock for half a week or less, according to Sanford C. Bernstein. During the period, Apple lost 20,000 units of potential sales, Bernstein analyst Toni Sacconaghi estimates. As long as the current drought persists, Apple could miss out on sales of 20,000 to 40,000 units a week, he speculates.

Apple spokesman Steve Dowling says the company is "working to replenish iPhone supplies as quickly as we can." He adds that stores "continue to receive shipments almost every day." The company is mum on the reasons, and analysts have a wide range of theories. One is that iPhone makers may be suffering a component shortage, but cell-phone makers and industry experts contacted by BusinessWeek.com dismiss such talk.

No Answers, Plenty of Explanations

Some analysts say the most likely explanation is that Apple is gearing up to introduce the next iteration of the device—that Apple is limiting production of existing models to make way for a sleeker device that affords faster Internet downloads. "I think this is short term," says Shaw Wu, an analyst at American Technology Research. "It's very typical for Apple to do this ahead of a product transition."

Historically, Apple has tightened its inventories of devices such as the iPod music player 60 to 90 days before a new model's launch, says Trip Chowdhry, an analyst with Global Equities Research. In December, 2004, some Apple stores ran short on iPods. That had something to do with robust holiday demand, but it also may have been related to the January, 2005, introduction of the iPod shuffle.

Another possible explanation is that Apple underestimated demand. Sales in the U.S. have been especially robust among European shoppers whose currencies are strong vis-à-vis the dollar. European carriers sell the iPhone for more than 60% more than Apple stores in the U.S. Some Europeans visiting America have been snapping up the devices and taking them home. "There's an unprecedented demand for the iPhone and a euro-dollar arbitrage," says Charles Wolf, an analyst with Needham & Co.. "I think Apple underestimated how strong the demand will be." Wolf says Apple may sell as many iPhones in the first three months of 2008 as it did in the period that ended in December, when it sold 2.3 million. Wu is forecasting a more modest 1.5 million units.

Advantage, Competitors

Some iPhones may not be making it onto store shelves simply because they're getting stolen. According to a report in the New York Daily News, a pair of truck drivers tried to abscond with $150,000 worth of iPhones bound for Hong Kong. Meanwhile, two former employees of an Apple store in Salem, N.H., were charged with stealing more than 300 iPhones, the Associated Press reported. There's no telling how many iPhone filchers are getting away with thievery.

If anyone stands to benefit from the iPhone scarcity, it's likely makers of iPhone wannabes (BusinessWeek, 4/3/08). On Apr. 1, Sprint Nextel (S) introduced the Samsung Instinct, a touch-screen device that enables Web browsing by way of a built-in camera. The same day, HTC unveiled two touch-screen phones. One, the VX9600 for Verizon Wireless, will sell for $300, with a two-year contract and after a rebate. The iPhone sells for $400 or $500, depending on the model.

And however long the shortage lasts, it's definitely bad news for resellers like Zade. His Wireless Imports now has a paltry nine iPhones; in its heyday, the store shipped more than 350 units a week. "We decided it's a better time now to focus on other products because it's not worth the headache," Zade says.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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