Interesting Observations About iPhone Numbers

Posted by: Arik Hesseldahl on November 26

One largely missed observation from the iPhone sales numbers that emerged as a part of Apple’s last earnings report concerned the number of iPhones reported as sold, versus the number of iPhones in channel inventory.

When you look at Apple’s data found here you see that Apple reported sales of 6,892,000 iPhones.

But does that number represent sales to actual users? It does not. During the conference call last month, COO Tim Cook said that 2 million of those iPhones were sold into channel inventory, meaning they were not yet sold to end-users, but were either sitting in warehouses or on store shelves.

This fact goes a long way toward explaining why financial analysts are predicting that iPhone sales will be smaller on a unit basis during the holiday quarter, than they were during the fall quarter. As Eric Savitz noted on Nov. 6, BMO’s Keith Bachman said that Apple this quarter faces a “tough sequential compare,” and forecasts Apple to sell only 5.6 million units this quarter which would represent a drop of more than 1.2 million from the fall quarter. Ben Reizters at Barclays sees 4.5 million. Other forecasts are less bearish. Bill Fearnley at FTN Midwest sees 6.3 million. Gene Munster at PiperJaffray is at 6.4 million.

Now before you accuse me of going all negative on the iPhone, here’s some other food for thought. The iPhone outsold Motorola’s RAZR during the third quarter, which has been the best-selling phone by volume in the US for about three years running, making the iPhone wireless champ in the US last quarter.

What’s likely to keep it in first place in the US and push the iPhone up the sales ranking globally? More volume. And how will Apple spur sales volume? Cutting prices. Munster’s been talking about a family of iPhone products — think iPhone nano or something like it — for some time. This assumption is central to his prediction that Apple will move 45 million iPhones globally the end of the 2009 calendar year, a forecast I refer to frequently because I think its pretty close to the mark, given Apple’s international launch plans.

And those international plans look very very big. Apple’s about to grow its total addressable market in a big way. As Munster covers at length in his “12 Questions” note from Nov. 25:

“Availability will grow from a subscriber base 600 million in 44 countries in late August to 989 million in 73 countries by the end of the year. This represents 50% growth in addressable subscribers ahead of, or during, the holiday quarter.”

SAI’s Frommer dismisses the idea of an iPhone nano or some iteration of a reduced-feature but suggests instead something straight out of Apple’s playbook: A price cut to $99 on the standard iPhone 3G sometime mid-year 2009, and a memory- and color-enhanced premium model. That’s a reasonable conjecture given that you have to assume that component costs, especially on heavily oversupplied NAND-type flash memory, will have come down substantially by then. Here Munster concurs saying “… we also believe that Apple will be able to lower its price of the phone to carriers by up to $150 in the next six months, but maintain its margins, by leveraging falling component pricing…”

Bottom line: All signs point to a tough holiday quarter for iPhone sales when you compare it against the fall quarter, which was, after all, the quarter when the iPhone 3G was brand new. But next year? That’s something else entirely. If international sales materialize, the potential for iPhone growth is, in a word, big.

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